Will You Outlive Your Money?

Will You Outlive Your Money?

June 21, 2021
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In 1928, U.S. life expectancy was about 57 years.

Today, according to the Social Security Administration, folks turning 65 this year have an average life expectancy of 84.3 (men) or 86.6 (women). What’s more, people are living longer than ever. One in four 65-year-olds today will live past 90, and one in 10 will live past 95. You can see you calculation here: https://www.ssa.gov/OACT/population/longevity.html

Most retirement plans assume you’ll retire sometime around 65 and live for another 20 years.

But consider this…

Someone who is 65 years old today is expected to live 20 additional years… to the age of 85. But when this 65-year-old was born, life expectancy was 68. So right now, this typical retiree is already 17 years “ahead of the curve.”

For a 65-year-old couple, there is a 45% chance one will live to 95.

And as medical advancements continue, that number could grow even more… even faster.

 The number of folks who make it past the age of 100 is expected to grow at a rate 20 times the total population by 2050, according to the U.S. National Institute on Aging.

What does this mean for you?

Outliving one’s retirement savings is the greatest fear of most people nearing retirement age. According to the Employee Benefit Research Institute, 61% of those aged 44 to 75 say running out of money in retirement is their biggest fear.

 There’s reason for that concern, too. More than half of Americans have less than $10,000 saved for retirement, according to GoBankingRates. And in an article in the New York Times, an economics professor estimated that nearly half of middle-class workers will be “poor or near poor” in retirement, living on a food budget of about $5 per day…

So imagine trying to milk those already sparse savings over 30 or 40 years.

This is why it’s so crucial to estimate your lifespan and make sure you don’t run out of money. Consider Social Security strategies, along with products like life insurance retirement plans (LIRPs), annuities and solid income-producing investments to provide a full, secure retirement.

 But the first step to take is to develop a plan…

The retirement landscape has undergone vast changes over the last couple of decades…

As we already mentioned, people are living longer. And previously reliable sources of retirement income – like pension plans – are dying out.  This is not fear-mongering - and it's not a hypothetical.

In 2001, the vast majority of pensions were fully funded. Generally speaking, "well-funded" means above 80%. But 50% funding or less is considered the "crisis point." It's extremely difficult to come back from 50% or less.

According to The Pew Charitable Trusts – an independent research organization – pensions in Connecticut, Illinois, Kentucky, and New Jersey are less than 50% funded. In fact, New Jersey sits at the bottom of the list... Its pension is only 38% funded.

Only seven states are 90% funded.

Proper retirement planning is becoming more critical.

And millions are using last-century planning techniques.

There are three phases of retirement planning:

1. Accumulation – The accumulation phase is the time when you focus on growing your wealth and getting a general idea of how much money you’ll need in retirement. You can do this through saving money, investing in the market, buying real estate, etc. It’s never too early to start accumulating wealth. Compound interest is one of the most powerful tools you have to grow your wealth, especially when you’ve got time on your side.  https://www.investor.gov/financial-tools-calculators/calculators/compound-interest-calculator

But - we tend to save what’s left over after funding all of our needs and a few of our wants… if we get around to it. The beauty of permanent life insurance is that its structure compels policy owners to save consistently. There’s a saying in the industry: “Life insurance is a savings account that shows up like a bill!”  life insurance moves “saving money” up in the priority hierarchy so that it’s one of the first things we pay. We tend to put money in savings after our bills are paid. Life insurance shows up like a bill, and bills get paid. And while there’s quite a bit of flexibility for policy owners that need to take a break from (or even halt) premium payments, most of us benefit from a structure that motivates consistent saving.

The financial media largely focuses on economic trends, stock picking, and rates of return, yet investor behaviors—in this case, savings habits—have a greater impact on results. The fact is, you have more control over your own behavior than economic conditions or markets. And you should always focus on what you can control.

2. Consolidation – During the consolidation phase, you should zero in on what you’ll need to survive - and to thrive - during retirement… including bills you’ll have to pay, income you expect to receive, etc. This is also the point when you switch to more conservative investments in order to preserve your capital. This phase is for people who are within several years of retiring.

Back to last-century planning…millions of 401Ks are invested in 'glidepath' strategies using Target Date funds.  For many this is the fund's default.  This 'feel-good' notion actually works against you, as bonds are often returning negative real returns today.  These TDFs are supposed to dial back risk as you near retirement, but in practice, that hasn't happened. In 2008, some TDFs designed for participants expecting to retire in two years lost as much as 40%!.  Every plan is different. It's dangerous to have your retirement savings in an outdated, one-size-fits-all financial vehicle.

You could spend a lifetime squirreling away your savings in a 60/40 or TDF allocation, only to come up short if the markets turn against you just before you retire.

3. Distribution – In the final phase, you get to enjoy your hard work in retirement. This is when you begin taking distributions from income sources like Social Security, a pension (if you have one), dividend payments, annuities, life insurance retirement plans, etc. I

t's a fundamental mindset shift. Many adapt quickly; however many folks struggle with it.

Arguably the most important thing to do is to start accumulating wealth. Lots of Americans are relying on Social Security to get them through retirement. But the average monthly Social Security check in 2020 was only about $1,503.

And what will happen if Social Security goes bankrupt?

That’s why you need to have a strategy to start building your nest egg. And the sooner you can start, the better.

One of the easiest ways to get started is buying shares of strong businesses that can keep up with future price changes and pass some of that growth back to investors.

I’m talking about opportunities that can pay you regular income – dividend stocks, master limited partnerships (MLPs), real estate investment trusts (REITs), utilities, preferred shares…

But don't limit yourself to just one asset class.  Supplement these with risk-free assets such as annuities and LIRPs.  And don't forget the value of real estate…a cornerstone of wealth for generations. You can get started in real estate investing with only $40K with money in an IRA or 401K.

The popular may not be the very best....people invest in 401ks because they are easy, and they get a tax deduction.  BUT be very aware of the tax implications of tax-postponed accounts such as 401Ks and IRAs. Will taxes be lower or higher in the future? 

Today's traditional retirement plan was designed over 30 years ago when 401k plans and IRAs replaced pensions.

Hasn't our society changed since then?

- We upgrade our cars so we don’t get stranded.

- We upgrade our software so our computers perform better.

- We upgrade our smartphone apps so they do more for us.

- When was the last time you “upgraded” your Retirement Plan?

Now is the time to give the traditional notion of retirement a second thought and consider alternatives that'll leave you better off emotionally and financially. If you are willing to open your mind, make some choices, and take a realistic look at your financial future, contact us and set up a call.  Then you'll be able to determine if I'll be able to help you Open your mind and check it out... https://www.incomeforlife.io/contact-us