While retirement has many hard-to-predict moving parts, like what your spending might look like, perhaps one of the most difficult questions to answer is this: “How long will you live?”
Thanks to advances in healthcare and technology, people are living longer. According to the Social Security Administration, the statistical average for a 65-year-old man is to age 84. For a 65-year-old woman, it’s 87.
Economists call the possibility of spending decades in retirement a “longevity risk.” Still, keep in mind those numbers are just averages. What someone’s longevity looks like on a personal level will depend on their family history, health status, and lifestyle choices over the years, among other things.
For many people, the uncertainty adds up to financial concern. In one survey, almost two-thirds of surveyed Americans said they worried about running out of money in retirement more than death!
However, if you are to have a Retirement Plan that guides you across the Arc of Retirement, you will need some guestimate of how long you might live. That way you don’t underspend or overspend your financial resources.
Here are five steps to help keep longevity risk at bay and tame the uncertainty. Read More
Before you add an annuity to your income strategy, it’s prudent to understand what an annuity does and what it doesn’t do.
Essentially, annuities are insurance contracts. They are built to pay lifelong streams of fixed income, protect money from market losses, or offer tax-deferred money growth.
Indeed, billions of dollars sit in these contracts. A large part of that is due to their popularity for lifetime income, or for higher growth potential than with other low-risk interest-earning vehicles.
Nonetheless, there are still a number of myths and misconceptions about annuities. That might be attributable to a few factors, from annuities being fairly complex to misleading annuity marketing and sales tactics being touted.
This isn’t to say that annuities don’t have a place in a retirement portfolio.
Just like with any other financial vehicle, though, they must have a specified role. That can include solving for particular retirement risks, working in tandem with other parts of a portfolio to reach certain goals, or even simply providing peace of mind with predictable retirement income streams.
Let’s break down some annuity myths and misunderstandings, one-by-one, and learn more about them. Read More
If you are approaching retirement, chances are you have been started exploring how you might enjoy a financially confident retired lifestyle.
This includes maximizing the value of your retirement portfolio – and creating dependable income streams that last as long as you need them to.
For retirement investors, one way to solve for this concern is drawing on a lifetime income stream from an annuity. But how appealing are annuities in the face of historically low interest rates? Especially ones such as those we have experienced for the last several years?
Since 2009, in the aftermath of the Great Recession, most developed countries have experienced a low-interest rate environment. Monetary authorities have sought to use low-interest rate schemas in order to spur economic growth and prevent deflation.
The U.S. saw rates cut to effectively 0% until 2016, when they began to inch higher. Still, today, the federal funds rate is only 2.5%, up just half-a-point from this time last year when it measured 2%. Read More
Sure, you can start your Social Security benefits at age 62. But is it better to claim early or delay benefits until a later date?
While a one-size-fits-all answer doesn’t work for everybody, a new study suggests that ill-timed Social Security strategies are costing Americans dearly.
United Income found that retirees might lose $3.4 trillion in potential income due to timing of when they enroll for their benefits. The research was a joint effort between the fintech company and former top policy officials from the Social Security Administration.
What about the income effect on retirees at a personal level? On average, each retired household would miss out on $111,000 of lifetime benefits. And for current retirees, premature decisions could add up to collective losses of roughly $2.7 trillion.
That would average out to roughly $67,000 in lost income per household. Read More
“Inflation is as violent as a mugger, as frightening as an armed robber, and as deadly as a hit man,” Ronald Reagan once famously said.
And the worst time to try to fight this formidable foe is when you are in retirement, living on a fixed income. Many people have some employment, or some involvement with entrepreneurship, for a stream of retirement income.
But chances are they don’t offer wage increases, or other inflation-countering benefits that you might have had in your working years, to help you keep pace.
Annuities are one of the few ways to obtain retirement income that is paid out as long as you live, making them a popular component of many retirement plans.
Investors have been using fixed annuities and fixed index annuities to provide lifetime income. These guaranteed income streams cover monthly costs and help people maintain their standard of living.
But if the annuity payout is fixed at the outset of the contract, by design it can’t be increased to keep pace with inflation. Should inflation rise 10% over time, for example, the buying power of a $3,300 monthly annuity payout erodes to $2,970.
This threat has the potential to affect a retiree’s lifestyle and could even require making unwelcome cuts in spending.
Having a financial plan is essential for a comfortable lifestyle, whether you are approaching retirement or are already retired. But what if you haven’t prepared yet for retirement?
Should you find yourself procrastinating and not developing a long-term Retirement Plan (“PLAN.xls”), take heed. This can get you into serious trouble over the long run, with your post-work lifestyle possibly taking a hit in one of two ways: by either overspending or underspending.
There is a weird psychology that can cause a retiree to drag their feet on developing a personal financial strategy. They might worry that, if they know too much about how their finances will play out over time, it will either scare them or at least disappoint them as financial reality sets in.
Think of it as a distorted version of the old saying, “What you don’t know can’t hurt you.” So, retirees spend away, figuring that they will worry about it later.
However, in the case of retirement, what you don’t know CAN hurt you. Especially when time isn’t on your side, and big financial mistakes are much harder to recover from since you aren’t working (or as least as much as you were earlier in your career) and the lifespan clock is ticking.
Whether dealing with overspending or underspending, the irony is that you will carry a heavy burden of worry in either case. But what you are really searching for in retirement is, above all, peace of mind. Read More
Editor’s Note: The following article is a retirement guest post that has been authored and contributed by Katherine Brown.
Have you already saved money for your retirement years, or are you playing catch-up now? You need to be aware of certain myths and misconceptions about retirement.
Surviving and thriving during your retirement years entails knowing the truth behind these misconceptions. When you are armed with the right information, it’s easier to turn your lifelong savings into dependable strategies that can help you retire comfortably. Read More
Annuities come in all shapes and sizes. And when you are considering one as part of your retirement strategy, sure, it’s important to determine whether an annuity is right for your financial situation.
But there are more annuities than hedge funds in today’s financial marketplace. That is a staggering number of options. If, relative to other solutions, an annuity does help you achieve your retirement goals, then choosing the right one is just as important as its role in your portfolio.
When people plan for their retirement, they usually have one chance to get it right. Your choices will determine whether you live well in later years – or will fall short and will have to deal with the results. This applies just as much to annuity purchase decisions as well as other financial choices for your future.
If you happen to be considering a fixed index annuity for your retirement, understanding how the annuity indexing works is a crucial component.
Your index annuity has many ways of being credited interest. And you might also have a wide menu of index options, from the plain-vanilla S&P 500 price index to newly-minted “volatility controlled” indices.
First, let’s explore how annuity indexing works. This will cover only annuities of the fixed variety.
Then we will address the new wave of indexing options that include volatility controls, which are a debated topic in the industry. Read More
For some time now, small business owners and their employees have had only a limited menu of effective workplace retirement-saving options.
High plan fees and other barriers have kept traditional retirement planning tools, such as 401(k)s, and income tools, such as annuities, beyond their reach.
A new bill, recently passed by the House of Representatives, aims to level the playing field for small businesses. It would also change some rules for required minimum distributions, or RMDs, which could help simplify retirement distribution planning.
Now it’s on track to move forward to the Senate. With unprecedented bipartisan support in both houses, the bill is expected to have a good chance of sailing through.
If the president signed it into law – or if Congress overturned a presidential veto – the Act would represent the most substantial changes to the U.S. retirement landscape in a decade. Read More
Making a plan to cover your long-term care needs in retirement is one of the most difficult issues you will face. No one knows what will be required in the future.
Some experts, such as Christine Benz with Morningstar, believe the probability can be quite high. In one of its bulletins (in which it also interviewed Benz), AARP estimates a 50 percent chance of someone needing some form of long-term care (LTC) at age 65 and beyond.
Of course, these statistical forecasts might not end up reflecting your personal situation. The truth? The answer may range anywhere from a price tag of zero to the need of skilled nursing care that costs hundreds of thousands of dollars over several years.
As fuzzy as that picture is, you can still plan effectively for the future potential costs of long-term care, not to mention other healthcare expenses. Read More
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