When planning for your retirement, you need to think less about how much you have saved and more about making your money last the rest of your life. This means you need to have a plan for guaranteed lifetime income that will, at the very least, cover your basic living expenses. There are several sources for guaranteed lifetime income. Maximizing your Social Security is of the utmost importance because for many people this will represent their biggest guaranteed lifetime income. There are many ways to maximize your Social Security payments in order to take advantage of the guaranteed increases you can receive by waiting until your retirement age, which for many is 65 but could be 66 for others. The Social Security Administration estimates that if you wait until age 70, then you will increase your payments by 8% from age 66 to 70, which is a 32% increase for the rest of your life.
If you have a spouse, there are a number of strategies that you can utilize, like file and suspend, so that both spouses can receive the highest amount possible. A good retirement planner can guide you through all the ways to maximize your Social Security payments, but if you file at age 62, your benefit is reduced by 75%, so the vast majority of the time you are much better off delaying until your retirement age, if not age 70. Due to longer life expectancy, the biggest fear that most retirees have is outliving their money, but you will never outlive Social Security income.
Besides Social Security and a pension, another way of helping to guarantee a lifetime income is with a lifetime income annuity. The reason a lifetime income annuity has the ability to work so well is because it is one of the only financial tools that features mortality credits, meaning the reallocation of contributions of those who die to those who survive. You can even have a joint lifetime annuity for spouses, your children, and grandchildren, so if you pass too soon, they will receive the payments for their lifetimes.
There are many types of annuities, like single premium immediate annuities, index annuities, variable annuities, and deferred income annuities. Once you have your guaranteed lifetime income, you need to consider how you will keep up with inflation. This can be accomplished with a balanced portfolio using a tactical asset allocation model meaning investing in the primary asset classes, which are stocks, bonds, real estate, and commodities. You can purchase exchange-traded funds (ETFs) or mutual funds that invest in these asset classes, so you don’t have to actually go out and buy real estate or keep gold. One thing you could do to help protect yourself from experiencing a steep market correction is having a portfolio monitoring system that can predetermine your losses based on your risk tolerance.
Another thing to consider is inflation-risk, which has always been important but has become especially important since life expectancy has increased. Another reason inflation-risk is a concern for retirees is the cost of medical care, especially long-term care. It is expected the cost of long-term care will continue to increase and combined with longer life expectancy, can reduce the desired lifestyle in retirement. You must have a plan for long-term care, and unfortunately, many people do not—mainly because they think it is too expensive, and if they pass before needing long-term care, then the premium is lost. However, paying for long-term care from your own pocket will be much more expensive, and it can prevent you from enjoying your golden years, not to mention spending your legacy.
Today, there are insurance companies that can offer combination long-term care policies that include an annuity with cash value and life insurance. In case you do not need long-term care, you can leave a tax-free death benefit to your heirs. You really need a plan, not only for your health care needs but to ensure that the money you have saved and invested all your life is not wiped out by the cost of providing care. Consider this a type of financial insurance for your money and your legacy.
Though our world has changed dramatically over the years, the way most people prepare financially for retirement has not, and this needs to change in order to have the best retirement in the 21st century.
Contact me at Alin@SarasotaWealthAdvisory.com
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