Research tells us that nearly a million motorists a year break down on the side of the road because of empty fuel tanks, and most of them are men who ignore the fuel warning light. A 2018 survey by Employee Benefit Research Group finds that just 17 percent of workers feel very confident about having enough money to handle basic expenses during retirement. Will you ignore the warning signs that your money might not last?
Here are the top five reasons why portfolios run out of gas during retirement, along with what you can do instead to keep your income tank on full.
#1 NOT SAVING ENOUGH
How much you’ll need to save for retirement depends on how much you spend. Experts suggest that we’ll spend between 70 and 80 percent of our current income in order to maintain basic expenses once we retire. There could be reasons why your needs may be greater or lesser, but this gives you a general rule of thumb. To help your money go further, you might look at ways to either increase your income or decrease your expenses once you retire. Working during retirement has become a growing trend and many people enjoy the social perks as well as the financial benefits. You might also consider simplifying your lifestyle during retirement, i.e.: canceling memberships, switching plan subscriptions, selling one of your vehicles, or downsizing your home.#2 DOING THE WRONG THINGS WITH YOUR MONEY
Once you do save, given market volatility and longer life expectancies, it’s even more important than ever that you do the right thing with this money from an allocation standpoint. During your working years, saving in designated retirement accounts such as a 401(k), 403(b), or an IRA can help you grow your money tax-deferred so that you can benefit from triple compounding. Because of low yields on bank investments, it’s typically a good idea during your working years to take advantage of market investments that can grow your money for the long term. Once you approach retirement, however, your risk appetite may change. Planning models suggest that moving a portion of your savings into investments that can structure your money for income can help you feel more secure.#3 TAKING OUT TOO MUCH MONEY FOR INCOME
Back in the 90s financial planner William Bengen developed the 4 percent rule to answer the question, “How much can you safely withdraw from a portfolio without running out of money?” Experts now suggest that this rule no longer works due to the timing of market volatility and our low-interest rate environment. The new rate is 2.8 percent, which means that you need to start with a larger amount of money or face a 50 percent portfolio failure rate. The alternative: put your money into some type of an annuity that can safely structure the income payments for you. You may even be able to get more income for the same amount of dollars.#4 LOSING TOO MUCH MONEY
Once you start taking money out of your portfolio, you are said to be in the distribution years. Now, instead of watching your accounts go up, you’re watching them go down. That can be scary, especially if you have these additional forces working against you: high fees and market loss. The SEC has issued a warning to investors about the impact of fees on retirement accounts, particularly those that are ongoing. If you are invested in a variable annuity, for example, you may be paying a lot more fees than you realize. Furthermore, a variable annuity may not protect your nest egg from stock market loss. To have your portfolio analyzed for excessive fees, please reach out to one of our advisors. They would be happy to do this kind of testing for you.#5 UNEXPECTED EXPENSES
The reasons for an unexpected expense during retirement could be happy or sad—a wedding, a birth, or a major home repair. The results can be devastating if you haven’t prepared. Some variable annuity investments change the terms of your contract if you withdraw too much money; excessive withdrawals can also upset a good income plan. One of the all-time best pieces of financial advice is to set up an emergency savings account. This account should be easy to access and not connected to market investments. Experts typically suggest saving three to six months’ worth of living expenses in a money market or savings account so that when the unexpected happens, you don’t run the risk of ruining a perfectly good retirement plan. Nobody wants to run out of money before they run out of life. If you have concerns about the ability of your investments to adequately support you during retirement, ask a retirement planning expert to run some tests for you. We can help you choose income vehicles that give you the most bang for your buck so that you can go further with what you’ve got. Ask your questions HERE.
