American workers are behind schedule in their retirement savings by an estimate of $6.8 trillion, according to the National Institute on Retirement Security.
In addition, 37% of Americans are considering delaying their retirement.* Hardly a news flash, right? We’ve all had that moment where it seems impossible to believe that what is in our retirement account will fund 30 years or more of life, never mind lifestyle.
The question is, what to do? There are many ways to plan for retirement. The first thing to remember is that you have the power to reduce or eliminate your personal retirement gap if you understand a few key principles for your retirement road trip.
First, it’s helpful to understand and actively manage your monthly expenses. Second, we need to acknowledge we cannot count on our employers to fund our golden years. Third, we need to understand that the future of Social Security is uncertain.
Why are these key principles important? Because they help you to envision a clear picture of retirement, and if you are to see the risks now, you can better counter them for the future. Here are three of the big risks to consider.
Longevity risk
Sounds like an oxymoron, doesn’t it? Like jumbo shrimp or virtual reality. Longevity risk is the probability that you’ll outlive your assets and your income stream will become a mere trickle unable to support you and/or your lifestyle.
Market risk
The market goes up and down. The younger you are, the further you are from needing to draw down your retirement income and thus the longer you have to “bounce back” from a market downturn. But as you age, a dip in the market when you draw from your investments for income could deplete your assets faster than you want, possibly preventing them from lasting your lifetime.
Inflation risk
What day do you spend the most money? If you say Saturday, you are correct. Well, guess what? When you’re retired, every day is Saturday. That’s what makes it so great. You will have more time to spend, but the activities you enjoy today will likely cost more in the future due to inflation, and you will spend more time doing them. Inflation risk is very real and has an even greater impact when your income becomes fixed during retirement.
To visualize what you’d like to be doing in your second half and to find a way to make it a reality, check your retirement reality.
Planning for the retirement road trip
An antidote to help you overcome the three risks is to devise a retirement savings plan that includes guaranteed income payments for life. You’ve heard that life is a journey? Well, it’s really an epic road trip, and you don’t want to run out of gas, cheesy puffs, and soda during the last leg. To ensure you have a full tank for the entire ride, you may want to explore a lifetime income annuity.
A guaranteed source of fuel
A sign of a great retirement is knowing you can enjoy the life you imagine. A lifetime income annuity can create a fixed stream of guaranteed income. If you choose, the income could last for a specific period of time or for your lifetime. Here’s how it works: Basically, you pay a lump sum of money, or a set number of payments over time, in exchange for a guaranteed payout for life.
First, an annuity can mitigate the longevity risk because you continue to receive payouts no matter how long you live. Second, market volatility can become a non-factor because the fixed payout is not affected by market fluctuations. Third, inflation risk can be lessened because you have the flexibility to customize your income stream at different periods of your retirement years as your expenses grow or decline.
As with any facet of retirement planning, there are many things to consider, including the cost and terms of the annuity and the reputation of the company behind it.
Talk to a Park Avenue® Wealth Management financial advisor about how the right investment vehicle can help you reach your destination in style.