Many factors make it challenging to plan for retirement income
- Historically low interest rates have slashed savers' interest income.
- Individuals have been provided more control over how they save for retirement and create retirement income. But according to actuarial consulting firm, Milliman, they may "...not have the knowledge, expertise, or guidance to make those decisions."
- People are living longer. This creates the need to plan for a long retirement.
- The outlook for inflation is uncertain. Higher inflation make prices increase, so retirees need more income to stay even.
- Ever-increasing health care costs make planning for retirement security a must.
- Emotions impact investors' decision-making. People can easily lose their long-term focus at a time when maintaining a long planning horizon is critical.
Whether you’re in, nearing, or decades away from retirement, you face an increasingly complex challenge — planning for income to last throughout your lifetime.
You’re not alone. More than 35 million Americans are over age 65 right now. The first wave of baby boomers has just begun to hit the shores of retirement, and right behind them are millions more. The number one concern is the possibility of outliving their income. The real challenge lies in how to utilize today’s financial planning tools to address your need for adequate retirement income.
Putting together an income planning strategy is not something that can be done piecemeal. It takes all of the financial planning elements working together to build a realistic plan.
We start by developing a composite picture of your envisioned post-career lifestyle, estimated essential and discretionary expenses, and inventory of potential financial resources. Before you can transform this picture into a practical road map toward financial independence, however, you need to understand and integrate into your plan five factors that may put you at critical risk in reaching your retirement income goals:
Many people underestimate their lifespan and risk outliving their assets. The facts indicate that half of the population may outlive the “average” life expectancy. A lifetime income plan helps our clients prepare for living well into their 90s.
The anticipated longer retirements and the impact of inflation make it more important than ever that portfolios include investments with the potential to outpace inflation.
- Asset Allocation
Many retirees think they need a conservative portfolio, but given the anticipated length of their retirement, this could create a heightened risk of outliving their assets. One of the keys to pursuing your goals may lie in balancing your income portfolio with your growth portfolio.
- Withdrawal Rate
Determining the proper withdrawal rate from your portfolio to generate a retirement income is critical — it could dramatically decrease the likelihood of retirees outliving their assets. This rate is determined based on your assets, your health, your lifestyle and the level of risk you’re will to take.
- Health Care Expense
Rising health care costs coupled with inadequate coverage can have a devastating impact on a lifetime income plan. Addressing this risk may mean targeting savings specifically for health care and considering purchasing long-term care insurance.
Steps to a Workable Retirement Income Plan
We help our clients develop a formal, written plan for managing retirement assets and drawing down retirement income. If you already have a plan, bring it out, rethink it, and revise it as needed to incorporate your understanding of the risk factors discussed here.
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