If you’re like most Americans, you’re looking forward to enjoying a nice, long retirement. But have you considered just how long it could last? It’s an important question to answer because the longer your retirement lasts, the more years of expenses you may have to fund with distributions from your savings.
Obviously, you can’t predict how long you will live. However, longevity and mortality data provide some insight that could guide your decision-making. According to researchers, there’s a chance your retirement could last much longer than you think.
The Centers for Disease Control and Prevention recently released a study showing that the U.S. population of centenarians—those age 100 and older—increased more than 43 percent from 2000 to 2014.1 Similarly, Pew Research found that the global population of centenarians has quadrupled since 1990, and that group could grow eightfold by 2050.2
While it may not be likely that you’ll live past 100, the odds are certainly increasing. If you retire in your mid-60s, a life span past age 100 could mean your retirement would span 40 years or more. You might even spend more time in retirement than you did in your career saving for retirement. Even if you don’t live past age 100, it’s possible that a long life span could put a strain on your financial stability.
Fortunately, there are steps you can take to minimize the financial risk that comes with longevity. Below are a few tips to keep in mind to help prepare yourself and your savings for a longer-than-expected retirement:
Don’t be too conservative.
It’s natural to adopt a more conservative mindset after you stop working, especially with regard to your investment allocation. After all, you’re no longer contributing to your retirement accounts, and you may even be taking distributions. A downturn could threaten your ability to generate income and support your lifestyle.
As much as you may want to avoid risk, you’ll also need growth to make your assets last through a multi-decade retirement. Inflation likely will gradually drive up costs over time. You also may see your expenses on things like health care increase as you get older. Investment growth can help you cover those costs.
Growth and risk often go hand-in-hand. Investments that have minimal risk may also have limited growth potential. If you are too conservative, you may not get the growth you need to fight inflation and fund a long retirement.
Work with your financial professional to develop a strategy that balances growth potential with downside protection. You may also want to consider tools such as annuities, which often have various mechanisms for growth, along with limited downside risk.
Create a stream of guaranteed* income.
One thing that can reduce the uncertainty of a long life expectancy is income that’s guaranteed for life. Social Security is one source of such income. If you have a pension benefit, that could be another source. After Social Security and pension, though, much of your income may come from savings distributions. Very often, those distributions are not guaranteed.
Look at ways to create guaranteed income so you have more stability in retirement. For example, annuities offer a variety of ways to generate guaranteed lifetime income. In most cases the income will last as long as you live, even if it’s well beyond 100. The actual amount of income depends on the terms and features of the annuity policy.
Delay Social Security.
You may be planning on taking your Social Security benefit at full retirement age (FRA) or perhaps even earlier. That may be a mistake if you want to protect against longevity risk. The earlier you file for benefits, the lower your benefit amount is likely to be.
In fact, you can delay benefits past your FRA all the way to age 70. Your benefit amount is then increased by 8 percent for every year that you wait. For example, if your FRA is 66 and you wait until age 70 to file, your benefit amount goes up by a total of 32 percent, or 8 percent for each of the four years.3 That increased benefit amount could be helpful in the later years of retirement.
Ready to plan for a long, happy retirement? Let’s talk about it. Contact us at Baacke Insurance Services. We can help you analyze your needs and develop a strategy. Let’s connect soon and start the conversation.
*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.
This information is designed to provide a general overview with regard to the subject matter covered and is not state specific. The authors, publisher and host are not providing legal, accounting or specific advice for your situation. By providing your information, you give consent to be contacted about the possible sale of an insurance or annuity product. This information has been provided by a Licensed Insurance Professional and does not necessarily represent the views of the presenting insurance professional. The statements and opinions expressed are those of the author and are subject to change at any time. All information is believed to be from reliable sources; however, presenting insurance professional makes no representation as to its completeness or accuracy. This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice.
16439 - 2017/2/15