The aging population isn’t just a demographic trend in the news. It’s a reality that each of us must plan for. Today’s average 65-year-old will live for at least another 20 years: A man that age has a 50 percent chance of reaching age 87, and a woman has the same chance to reach age 90. One person in a married couple has a 50 percent chance of living to 94, and there is also a significant chance either could live much longer.1
It is possible to accomplish the retirement you want – even one lasting 30 years or more – but you need the right approach to get there. Start preparing now, and think in terms of creating multiple income streams to fund your long-term goals. A financial representative can provide guidance and tools to help you navigate this process.
The first step is to develop a practical budget based on a real-life vision of your retirement. You’ll need to go beyond the general “I want to play golf when I retire” to the very specific, such as “I’ll golf three times a week, six months a year, at a public golf course.” This means looking at all the possibilities and costs for things like where you might live, how much you want to travel, hobbies or activities you’d like to pursue, and support you may provide to family members. Ask a financial representative for a copy of the “Picture Your Retirement” workbook to help you get started.
With a specific retirement budget identified, you’ll see what would fall into the “must have” category, like essential living expenses, and the “nice to have” category that is more discretionary. That breakdown gives you the framework for finding different income streams to support your needs. Here’s how it works:
- Use Guaranteed Income for Essential Expenses
A top priority is to have predictable, uninterrupted income to cover the “must have” expenses, like housing, food, transportation, insurance premiums, condo fees, health care costs and taxes. Allocate one or more of the following guaranteed income streams to cover these non-negotiable living expenses for as long as you live:
- Social Security – Be sure to explore all the possibilities to maximize Social Security benefits based on your age, family situation and benefits. In some cases the primary breadwinner could increase income long term by delaying the start of Social Security payments. For a retiree who has a young or disabled child, taking benefits sooner may offer more possibilities.
- Annuities – An annuity contract can provide you with an income stream to last for your lifetime. Income annuities can be immediate or deferred and can provide guaranteed income. Deferred income annuities specify a future date that the annuitant will begin taking payments. One example is the Select Portfolio Deferred Income Annuity, which has the added benefit of being eligible to receive dividends from Northwestern Mutual. Although dividends are not guaranteed, you can choose to reinvest any dividends you do receive to increase your guaranteed income.
- Pensions – Assets in employer-based plans often accumulate without your direct participation. Be sure to track these assets as part of your ongoing retirement planning, and be aware of their tax implications and distribution options so you can make the best planning decisions.
- Tap Investment Assets for Discretionary Expenses
A well-thought-out investment plan offers you the growth potential, flexibility and liquidity you need to accumulate assets over the long term. Investments can provide a good income stream to fund discretionary spending, such as entertainment, travel and gifting. Work with a financial representative to determine the best asset allocation and distribution plan to accomplish your goals while adjusting for market uncertainty and tax considerations.
- Account for the Inevitable
Taxes and inflation are a fact of life when you are saving for the long term. As you consider various income streams, be sure to evaluate the tax impact and benefits of different financial vehicles. The Northwestern Mutual Retirement Strategy, developed in collaboration with Ernst & Young, helps you determine the best distribution plan for your assets, taking into account the immediate and future tax implications.
- Protect from Risk of Long-Term Care Expenses
Recognizing that you may live a long time, health events, such as a serious illness or an injury resulting in physical or cognitive impairment, can have a profound effect on your life and your financial future. You need a strategy within your retirement plan to fund long-term care should the need arise. A financial representative can suggest some options to protect against risk in this area.
- Leave a Legacy By Design, Not By Chance
If a financial legacy is important to you, you can achieve that goal with life insurance. Permanent life insurance can provide a tax-free financial legacy to children, grandchildren, a family member with special needs or a charitable organization – while giving you the freedom to spend your retirement savings.
Planning for multiple income streams, including guaranteed income and investments, can provide a balanced and reliable way to help you fund your needs throughout your lifetime. Talk to a financial representative about a plan to put the right assets in the right places to be ready for retirement, no matter how long it lasts.
1Source: Annuity 2000 Mortality Table