Bridging the Retirement Gap
In the simplest sense, retirement planning is the planning one does to be prepared for life after paid work ends, not just financially but in all aspects of life. From a financial perspective it can be described as the process of determining retirement income goals and the actions and decisions necessary to achieve those goals. Retirement planning includes identifying sources of income, estimating expenses, implementing a savings program and managing investment assets.
You have much to consider in your retirement planning – market volatility, low interest rates, rising inflation, extended life expectancy, taxes, increasing health care costs and the uncertainty of Social Security income. To help reduce any uncertainty in your plans, it’s a good idea to explore the difference in your projected retirement income and your retirement expenses. This difference represents the gap you may have in your retirement plans.
Sequence of Return Risk – the importance of WHEN your ups and downs occur.
It’s not just how much your investments go up or down, it’s also WHEN the ups and downs occur. WHEN your portfolio goes up and down can have a dramatic impact on your retirement income – significantly affecting your portfolio’s ability to last as you make needed withdrawals. It is crucial that you understand the relationship between timing or “sequence of returns” and your rate of withdrawals, so you can minimize the potential risk that early poor returns can have on your long-term retirement income.
Lack of Guarantees – determine how much of your income comes from guaranteed sources like social security, pension and annuities.
Once upon a time, workers could count on receiving a pension after working with a company long enough – just like many of our parents enjoyed. Since the creation of the 401(k) in 1978 most employers have shifted away from defined benefit plans or “pensions” and many of those pension plans that do exist are cutting back or failing. For many of us, we must now ensure our own retirement income. If your portfolio doesn’t include sufficient guaranteed sources of income to cover essentials (your needs) and ensure your lifestyle (your wants) for the remainder of your life and your spouse’s life consider using income vehicles to bridge this gap.
Longevity – when I retire, how long will my retirement income last?
Are you ready to live to age 95 – or beyond? We now face the real possibility of living up to 30+ years in retirement. For a couple age 65 today there is a 43% chance that one or both will reach the age of 95 according to the latest data from the Society of Actuaries. Living longer is a good thing, of course. But there’s a downside – increasing longevity means we will need more income and that requires planning.
Rising Costs – how much will my retirement cost?
I often describe inflation as a “thief in the night” because inflation slowly decreases our purchasing power. We all experience the rising cost of basic expenses such as food, utilities and housing over time. In planning, it’s wise not to underestimate the impact these rising costs can have on your standard of living. Inflation and health-care costs can erode your retirement nest egg over time. And inflation impacts retirees disproportionately because health care costs are rising faster than the cost of other goods and services. For instance, in the 10 years from 2005-2015 general inflation has risen an average of 2.28% per year and health care cost inflation has risen an average of 3.42% per year. *
*Forbes.com , U.S. Health Care Costs Rise Faster Than Inflation.
How can we help?
If you have concerns about the risks you will face in retirement, including running out of money, we can help you with strategies to minimize these risks including vehicles to provide you income for your life and the life of your spouse – a “paycheck for life”. Let us help you bridge the income gap to a happier, less stressful retirement.