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Avoid Running Out of Money in Retirement

Greg Map 200 200

Greg Bodoh
Dominion Retirement Planning

Retirement security is a driving concern for many Americans. It’s no secret as to why. Inadequate retirement savings, growing income expectations of Social Security, longer life expectancies, and record amounts of people retiring are all influential factors.

At the center of it, many individuals are worried about if they will outlive their retirement funds. It’s a growing concern given changing trends. According to U.S. federal government data, the average life expectancy is 78.8 years. Thanks to innovations in healthcare and technology, the human lifespan is longer than it’s ever been in history.

With opportunities for greater life longevity, how should people plan for the future? Read on to learn about some strategies you can adopt, whether you’re planning ahead or you’re currently in retirement.

Ways to Avoid Outliving Money in Retirement

Be proactive. If you aren’t retired already, it’s best to be prepared ahead of time. A personal financial plan will help. The first steps are figuring out what your retirement expenses will be and what your cash-flow is likely to be in your later years. For a target amount, we recommend with coming up with a “retirement number” that’s suited to your future needs, goals, and objectives.

Ultimately retirement numbers will differ from person to person. For instance, women have different retirement income needs from men. Account for future expense burdens including healthcare costs, daily living costs, long-term care costs, or any specialized costs which may apply. Once you’ve an idea of these projections, the next step is coming up with a plan to achieve your retirement funds goal. Be sure to consult with a qualified financial professional.

If you’re still in the workforce, implement a steady savings rate. Studies show workers are likely to be better off when they save steadily over their careers instead of relying on withdrawals in retirement. Should you still be in your career, it’s worth considering over time putting a strategic rate of your income into retirement savings. Savings rates will differ from person to person. But it can help in reaching for a target wealth accumulation amount.

Investment options such as stocks or bonds offer return potential. But they’re in volatile markets, and income certainty, coming from safe and intact retirement savings, should be a primary focus in retirement planning. Some experts recommend a baseline savings rate of 16-17% so you can have a safe, sustainable withdrawal rate in retirement – say 4%. Keep in mind: with lingering low interest rates, longer life expectancies and other variables, the 4% withdrawal strategy may not be appropriate for many Americans.

Make periodical adjustments to withdrawal rate. In the financial services industry, the going advice is to come up with a withdrawal rate and stick with it. But some experts recommend being open to making adjustments when appropriate. After all, there are many factors which can impact the dynamics of your retirement expenses: medical emergencies or unexpected personal situations are just a few.

Under this approach, periodical adjustments could be made at strategic intervals. Once some periods of months or a year passed, it would be time to reassess your financial priorities, based on life expectancy, current spending levels, and future expectations. Drops in the market or life change events could cause you to reallocate your portfolio, which could impact your plans for withdrawals as well.

Set limits for your withdrawal rate. Another way to help control retirement funds is setting a “ceiling” and “floor” on how much you can withdraw. The ceiling would consist of a level which is an upper limit, and the floor a minimum threshold. Portfolio withdrawals would be at least for the floor amount.

Once you’ve set these levels, it’s advisable to not journey outside those boundaries. Ceiling and floor levels could be adjusted for inflation each year. In general, if retirement expenses are a big concern, it may be worth it to consider which expenses are excess. Then cut out those expenses to stabilize cost burdens over time.

Consider guaranteed income benefit products. There are financial products which offer guaranteed income benefits. Solutions such as annuities offer options for guaranteed lifetime income, some equity growth potential, principal protection, and tax deferral. Keep in mind, though: many annuity products don’t offer a hedge against inflation. So if that’s a concern be sure the annuity products you’re considering have that option.

Any annuity product should be appropriate for your unique needs and objectives, too. There are many types of annuity products on the market. Take time to educate yourself about the strengths and weaknesses of each offering, and how it relates to your needs. A qualified financial professional can help.

If you're ready for personal attention, can help you. Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.

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