Financial Planning Focus – Will You Outlive Your Money?
According to new estimates from the Society of Actuaries, the average 65 year-old will likely live until their late 80s. On average, women are expected to live until age 88.8, while men are expected to live until age 86.6. These results represent an increase of over 2 years from the life expectancies projected just a few years back, in the year 2000. This is great news for those looking forward to more golden years of travel, relaxing and time with children and grandchildren.
Of course this also means that we will need more financial resources to support these additional years. Pension plans are estimating an increase of projected liabilities by 7 percent to cover these extra years of payments to pensioners. If professional actuaries are considering a 7 percent increase in their costs, it’s probably safe to figure a similar increase in your accumulated assets to fund these additional years. So the question is – what strategies will stretch your retirement assets?
Start by planning to live longer. Don’t underestimate your life expectancy in any retirement planning projections. Although many of us would like to write a check for our last dollars just before we expire, it’s a good idea to have a built-in longevity reserve in your asset base.
Be cautious with your gifting to children, grandchildren and charities. This is a frequent discussion topic with our clients. Many people want to generously share their wealth during lifetimes; however you don’t want to be asking for those funds back later. As much as your children and grandchildren may tell you that they need your money, they really would rather not have to support you during your retirement.
Plot your Social Security strategy with much care and forethought. While Social Security may only make up a portion of most people’s retirement income, it is one source that you can’t outlive. Although Social Security is available at age 62, payments started at age 62 will be reduced by 25 – 30 percent from your full retirement benefit at age 66 or 67. You can increase your Social Security payments by 8 percent for each year that you delay the start of payments after full retirement age until reaching age 70. Social Security payments are also indexed to inflation, meaning that payments started later in life have a larger base for annual inflation increases.
Although monthly pension payments are much less common today, these benefits can be a great stabilizer for a retirement strategy. Don’t be too quick to take a lump sum benefit from a pension plan, particularly if the payout plan has an inflation provision. You also need to consider the loss of any health insurance benefits that may be attached to the pension benefits.
The single most important method to stretching your retirement assets over your lifetime is being flexible with your withdrawal schedule. In years when investment returns are lower, consider reducing your withdrawals to allow the portfolio time to recover. Conversely in years where investment portfolio gains are better than expected, you can treat yourself to some additional withdrawals.
The key to a successful retirement funding strategy is having a plan and sticking to it. As you progress through your golden years, occasional updates to your retirement projections will help keep you on track.
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This report has been prepared by West Financial Services, Inc. from original sources and data we believe to be reliable. This report is for informational purposes only and should not be construed as investment, legal or tax advice. Analysis of past market conditions may not predict future market activity.