How Long Will Your Retirement Savings Last?
A long lifespan is usually a good thing. Most people dream of living a long, happy retirement. But what happens when your retirement is too long? That’s the risk that millions of retirees may face.
According to recent studies, people are living longer than ever. A recent study from the Centers for Disease Control and Prevention found that the number of Americans age 100 or older increased more than 43 percent from 2000 to 2014.1 An additional study by the Pew Research Center predicted that globally there will be 3.7 million people age 100 or older by 2050.2
It’s very possible that your retirement could last several decades. In fact, you or your spouse could live well into your 90’s or even past age 100. Such longevity may put a strain on your finances. The good news is there are steps you can take to plan ahead and maximize the number of years your funds last. Below are a few tips on how to manage your longevity risk:
1.) Don’t be afraid to take some risk.
It’s natural to want to avoid risk and downside exposure in retirement. After all, you’ve worked hard to accumulate retirement assets. A downturn in the market has the potential to impact your retirement income and your ability to support yourself.
However, it is possible to be too conservative. You’ll likely need growth to fight inflation and help your savings last decades. Risk and return often go hand in hand. If you don’t take any risk, you may eliminate any possibility for growth – even if that “risk” is simply putting your money into a conservative investment or other strategy that you have not tried before.
You can work with a financial professional with experience in retirement income planning to develop a strategy that strikes the ideal balance of growth potential and risk management. Annuities may be a good option to consider, as they can offer both growth potential and downside protection.
2.) Consider tools that provide guaranteed lifetime income.
It used to be that retirees could count on guaranteed* lifetime income from Social Security and a pension. Those days are long gone. Many employers no longer offer pensions at all, and Social Security is available, but it’s usually not sufficient to fully fund a retirement. (Most estimates show that Social Security will cover about 40% of your total expenses in retirement.)
Fortunately, there are other tools you can use to develop guaranteed* lifetime income streams. Annuities are one potential strategy. There are several different types of annuities, many of which have options to generate guaranteed* lifetime income. The amount of income an annuity offers depends on the terms and features of the policy. You can explore your options with a financial professional to discover whether an annuity might be the right step for you.
3.) Delay Social Security as long as possible.
While it can be tempting to file for Social Security as soon as you are eligible, waiting to file your Social Security claim can be a beneficial strategy to increase the amount of your payments, which could help you manage rising costs in the later years of your life. You receive an 8 percent increase in your benefit for every year after your full retirement age that you wait to file. It’s possible to delay filing up to age 70.3 For example, this means if your full retirement age is 66 and you delay filing until age 70, your benefit will increase 32 percent.3 Keep in mind that your chosen Social Security strategy should take into account your current health and expected lifespan, as well as your needs and goals in retirement, and your other retirement assets, so you should be sure to consult with a qualified Social Security specialist to determine the best strategy for your particular situation.
Ready to plan your long, happy retirement? Let’s talk about it! Contact us today for a free initial strategy session. We can help you analyze your needs and develop a strategy that suits your needs.
*Guarantees, including optional benefits, are backed by the claims-paying ability of the issuer, and may contain limitations, including surrender charges, which may affect policy values.
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