Make Your Money Last
After years of working hard and saving money, you're fortunate enough to live the life you want to lead, which may include a decision to stop working full-time. However, given the advances in medicine in recent years, you may be concerned that you might outlive the amount of money you have put aside for retirement. In fact, statistics say there's a 50 percent chance that the survivor of a 65-year-old couple will now live to the age of 90. Therefore, it's important to develop a financial strategy that not only provides for your current needs but also includes a plan to prepare for the unexpected.
This strategy starts with understanding where you are today and determining the sustainability of your retirement income strategy. Think about the following:
How much income will you need in retirement? What are your necessary expenses?
What are your outside sources of income (such as Social Security and a pension)?
How much will you rely on your investment portfolio to provide the income you need in retirement?
Depending on your individual situation, you may be looking for ways to increase your outside sources of income and, in turn, rely less on your investment portfolio for the income you need to cover your necessary expenses. This becomes even more important if unexpected events derail your strategy.
There are two ways to help ensure your income lasts through retirement:
1. Create and stick to a sustainable withdrawal rate strategy: As a general rule, the longer you expect to live, the lower your rate should be. Generally, we suggest an initial annual withdrawal rate of about 4 percent. One way to fortify this foundation is to consider allocating a portion of your portfolio to income insurance with an annuity that offers income payments for life.
2. Allocate a portion of your portfolio to income insurance: Depending on how much you rely on your portfolio for income and your spending flexibility, you may want to consider annuities that provide lifetime income benefits. These types of annuities offer several benefits:
Regardless of how long you live or how your investments perform, you receive a lifetime, predictable cash flow.
You can receive a higher initial cash flow relative to what we recommend withdrawing from your investment portfolio.
You can reduce your reliance on your investment portfolio for income. This could be especially beneficial in the early years of your retirement, when market declines could have the greatest effect.
Of course, while individuals and families have specific retirement goals and different ways of getting there, most people's goals include ensuring that their money will last through retirement.
Provided by Lee Bradley, Investment Representative, Edward Jones, Surprise, AZ. Member SIPC.