It's been fairly standard for some time now for financial planners to recommend that you should be prepared to spend from 20 to 30 years in retirement and to save and invest accordingly. That no longer may the case as innovations in health care and technology begin to extend our lifespan into the 90s and 100s.
According to Census Bureau data the fastest growing segment of the population is people over 85. Currently, actuarial tables say that if you're a 65-year-old man retiring today, you have, on average, 18 years of life remaining, taking you to age 83. Women of the same age have 21 more years, to 86.
That kind of information helps insurance companies who rely on averaging the life spans of their customers. But who's average. And who's to say whether you fit into that statistical model.
You could die tomorrow, or like my aunt, live until you're 97. She retired at 65, but had a pension and Social Security so she was all right up to the end. But what if all you have is your Individual Retirement Account or your 401(k) and Social Security? Are you going to make it to 97 without living on a meager monthly Social Security check?
So if you are planning for 20 years, you could easily end up outliving your wealth. It's estimated that there are about 55,000 people in the
The message we're trying to get across today is that if you're going to plan for retirement, plan for 30 or 40 years and not just 20.
Here's an even scarier statistic. According to the Employment Benefit Research Institute (EBRI), more than 40% of Americans are at risk today of running out of money in retirement. For those in the lower income spectrum, it's even worse. EBRI says one of five of them will run out of money within ten years of retirement.
What to do
Are you scared yet? Are you ready to do something about it? Okay. Here's what you need to do.
Depending on your age, the earlier you begin saving for retirement the better. It's never too early. For most of us, it's a different story. For us, the most important thing we can do is work as long as we can so we can save more, and investing more effectively. Also, the longer you wait to take Social Security, the more you'll get. The break-even age is somewhere around 79 so if you're in good health, chances are you'll live that long. So try if possible to take Social Security when you're 70. It will be nearly twice what you get at 62.
The next step is to build up a nest egg that you can draw from. And then draw as little as possible in the beginning so the rest can keep growing. It used to be you could withdraw 5% or 6% a year and still have enough left over to keep growing. Those days are gone. This is a new era and a new kind of market. The slow growing kind. Retirement experts now recommend keeping annual withdrawals to 3.5% or lower, especially if you need your savings to last 40 years.
That means you're going to have a pretty stable investment strategy. Either that or buy an immediate fixed annuity. With an annuity, for a mire $300,000, a 65-year-old man can receive about $2,000 of income per month for the rest of his life. Granted, that's not cheap but it's kind of like buying a winning lottery ticket. You just have to pay a bit more for it. It still gives you the piece of mind that comes with a steady income that you will never outlive.
