What will a successful retirement look like to you?
- Is your vision of retirement rebalancing your time? Renewing your purpose? Recharging your batteries with an old or new interest?
- How should your money be invested to support your goals when you actually reach retirement?
- What steps can you take to ensure you won’t outlive your income?
“Becoming a retiree” doesn’t mean retirement planning ends. Spending retirement assets can actually be more complex than building them.
Americans are living longer. The National Center for Health Statistics estimates the current average United States life expectancy exceeds 78 years. That means many people will see their 80s and 90s.
Most people underestimate their life expectancy and risk running out of money. For example, there is a 25% chance that a 65-year-old man will live to age 91, and that a 65-year-old woman will like to age 93! (Based on 2000 Annuity Mortality Tables, Society of Actuaries)
Living longer means spending longer. Planning early is the best way to ensure you won’t outlast your nest egg.
Many retirees spend as much or more money in retirement as before, and income needs may actually increase over time with additional medical expenses.
The following process may help you estimate your future needs:
- Start with your current income.
- Subtract expenses that will go away in retirement (contributions to retirement savings and commuting expenses).
- Add anticipated additional expenses (travel, entertainment and insurance).
- Make adjustments for inflation and taxes.
It’s best to plan conservatively assuming expenses will be higher than what may be needed to provide a cushion for the unexpected. Additionally, you should take into consideration what expenses are fixed (mortgage payments) versus those that can change over time (prescriptions or entertainment). By determining your fixed expenses you can create a guaranteed income stream to cover these essentials.
Your retirement income may and ideally will come from many sources, such as:
It can be difficult to develop a coordinated plan that takes into account and monitors all these resources.
Working with an expert can help you:
- Identify the right asset mix for your portfolio.
- Evaluate and choose an appropriate strategy or strategies for retirement income.
- Develop a coordinated plan for all your accounts and monitor your resources.
When many people hear the phrase, “retirement planning,” they think about wealth accumulation or saving for retirement. But thinking about how you will distribute those savings is just as important and possibly even more complex.
Managing investments during the distribution phase is different from managing investments during the accumulation phase. Even tried-and-true investment strategies like dollar-cost averaging* may work against a retiree taking systematic withdrawals from an equity portfolio. That’s because more securities must be sold when the market is down in order to generate the same income as when it is up.
Distribution strategies can be as varied as retirees themselves, but can fall within general categories for using investments and annuities.
Several examples of how to generate income for retirement include:
- Taking distributions from your savings and investments
- Guaranteed** income from annuities
- Relying on a combination of sources – for example, investments, annuities and cash value from life insurance
It’s a lot to digest. The only way to know what’s best for you is to consider all aspects of your unique situation.
*No investment strategy can guarantee a profit or protect against a loss.
**Annuity guarantees are backed by the claims-paying ability of the issuer.