The Bad News About Living Longer and What You Can Do About It
The number one concern for most retirees today is running out of money and for good reason – people are living longer. A 65-year-old male today has a 30% chance of living another 22 years, and a 65-year-old woman has a 28% chance of living to the age of 90.1 Back when Social Security was first formed in 1935, the average life expectancy at birth was 58 for men and 62 for women.2 Retiring at age 65 meant you felt pretty darn lucky just to be alive.
The news gets even direr for American women: a widow can expect to be on her own for an average of 14 years.3 This is absolutely no fun to think about, but it’s even worse to deal with if you haven’t sat down and figured out what to do about it.
No one cares about your nest egg more than you do, which means you have a responsibility to tend to it and make sure it stays healthy during the years to come. Are you ready to live to 100? Here are three simple steps you can take today to prepare.
STEP #1: Establish sound budgeting habits.
If you’ve made it this far, to your retirement years, then you’ve no doubt established a disciplined approach to saving. If you have an IRA, a 401(k) or a brokerage account, then congratulations – you’ve given your retirement a major boost.
Now the next part of the budgeting equation is answering this question: what will you do with your money now? Retirement is sometimes called the distribution phase of your financial life because your budgeting concerns turn from how to SAVE your dollars correctly to how to SPEND them correctly. If you’ve worked hard and established sound budgeting habits, then you know how to live within your means. But how do you structure your savings to accommodate this lifestyle?
Step #2: Consider an annuity.
Let’s just take a moment to recognize that the word “annuity” has become something of a dirty word to retirees today. Annuities get a lot of negative press due largely to the fact that there are so many different kinds of them out there. Yes, an annuity can be expensive and cost you a lot in fees, and it can be hard to get out of, but so can a marriage. That doesn’t mean you don’t want a good one.
There is no such thing as a retirement income solution that works perfectly for everyone. However, an annuity can be a great option for those who are worried about the security of their income over a long period of time. This is an especially important part of your distribution planning if you need to bridge the gap between what your Social Security benefit will provide and what you need to support your lifestyle.
Nobody wants to take a pay cut during retirement. An annuity provides a guaranteed income stream that can last for a specified length of time. Optional income riders or death benefit riders added to an annuity contract can provide lifetime income and spousal benefits for income during later years. They can also give you tax-deferred growth, market-linked gains without market loss, and principal protection.
Be warned, however, that not all annuities are created equal. Some annuities can lose you money, they don’t give you access to fast cash and they are not necessarily appropriate for all investors. Before you say “I Do” to the long-term commitment of an annuity, make sure you understand what you are getting into and what it will cost.
Step #3: Educate yourself.
Every financial decision you make at this point in your life has the ability to either negatively or positively affect the durability of your nest egg. You want to look with a very clear eye at the person who is managing your money or giving you financial advice. Just as you would seek a second opinion from a qualified medical doctor after receiving a scary diagnosis, you also want to get a second opinion if your advisor or financial salesperson is pressuring you into a big financial decision you feel uneasy about.
Financial sales agents who only offer annuities might try to sell you on the idea that an annuity is the right place to put all your retirement money. Fee-only advisors who cannot and do not sell annuities might try to convince you that an annuity is the worst thing you could possibly do. So what’s the best thing for you do to?
Educate yourself as much as possible about the different kinds of annuities, what they do, what they cost, and what they can give you in terms of your individual needs. During retirement, it’s vital to the stability of your nest egg that you stay on top of your plan. Circumstances change and life stuff happens. Regular consultations with an experienced financial advisor will help keep your plan on track so that you get a retirement income strategy that works with you. Got questions? We’re here to help.