When considering your retirement strategy, how much thought do you give to how long you might live? It can be an uncomfortable reality, but this shouldn't dissuade you from giving it some serious thought.
For many people preparing for retirement, one of the biggest fears is running out of money. If you've lived to 65 years, you will probably live to at least 84 years if you're male and 87 years if you're female, according to Social Security tables. These are only estimates, but it's essential to remember that you might live much longer than you expect, and some household members could outlive others by many years.1
You might live to 100 years and beyond: the National Institute on Aging anticipates that the number of centenarians will grow by a factor of 10 during the first half of this century, representing a host of challenges for anyone attempting to devise a retirement strategy.1
For example, healthcare costs must be incorporated. As you age, your healthcare needs will likely grow from simple doctor's visits to potentially living in an extended care facility. These costs naturally increase over time, whether through inflation, market volatility, or other factors. So, while you can look at today's prices as a guide, you will likely need much more money to cover your healthcare. Medicare will help, but it doesn't cover everything, including a lengthy stay in extended care.2
Your retirement strategy might include a spending plan that considers the likelihood that you will want to travel, pursue your interests, and spend time with family, as well as that allows for a long life and covers the associated financial expenditures. Unless you work beyond retirement age, it can be challenging to make up for a market dip, emergency expense, or heavy spending, so your strategy should cover many circumstances.
How much will you need to withdraw per year without diminishing your account too quickly while still controlling for inflation and other factors? Calculating this as part of your retirement strategy may be essential. While some financial professionals have downplayed the 4% rule in recent years—the number of your investments used in the first year of retirement—and have revised it upward or downward as needed, the theory is that you may be able to live on your retirement funds for upwards of 30 years or more.3
Other factors to consider include focusing on tax-efficient withdrawals from your retirement accounts. You might also decide that working longer or taking Social Security later (allowing for larger payouts per month) could extend your retirement strategy further. Of course, these topics and others will be addressed while working with a financial professional to form a retirement strategy and implement it. If nothing else, you should now appreciate what a significant undertaking your retirement strategy represents and how relieving it will be to have help along the way.
It would help if you understood: All investments involve risk. Past performance is no guarantee of future results. Specific market and interest rate risks could adversely affect any investment and cause a loss in your account. The risk parameters you provide your advisor are guidelines; there is no guarantee that they will be met or exceeded. Shares of any particular investment may fluctuate in value and, when redeemed, may be worth less than their original cost. There is no guarantee that a target allocation or research recommendation will protect against investment loss or outperform an alternative.
This content is developed from sources believed in providing accurate information by Twenty Over Ten and Linden Wealth Management LLC. It may not be used to avoid any federal tax penalties. Please consult legal or tax professionals for specific information regarding your situation. The opinions expressed and material provided are for general information and should not be considered a solicitation for the purchase or sale of any security.