Retirement should be something to look forward to. A time to indulge in favorite activities and explore new interests. A time for friends and loved ones. A time for reflection on a life well-lived. Unfortunately, for many it can instead be a period of declining living standards, gnawing worries about finances, and concern about the possibility of developing a financially, as well as physically, debilitating illness. And even for those who are better off than most, it can give rise to concerns over the quality of the legacy that one is able to leave behind.
This is especially true today, which is why planning for retirement is more important than ever. And probably more challenging. Our increasingly interconnected world is one in which problems almost anywhere around the globe can have an almost immediate and sometimes devastating financial impact far beyond where they originate. This kind of economic action-at-a-distance can wreak havoc with markets, and hence retirements, because it can negatively impact the valuations of (and cash flows from) the assets of those who invest in them. In addition, longer life spans, undoubtedly a blessing in themselves, have created financial challenges that most of our parents and grandparents never had to worry about. These changes raise a host of questions across a broad range of topics. How do we best care for an aging society? How can we better protect our domestic economy from ripple effects of an increasingly wide range of potentially damaging events around the globe? From a personal financial planning perspective, this all boils down to one simple question: How can I be sure that my money will last as long as my retirement?
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It’s a question that’s scaring people. And with good reason. Medical advances and enormous improvements in health care over the last few decades have translated into people spending far longer in retirement than ever. Most Americans will likely have retirements of more than three decades.1 Statistics show that one in four 65-year-olds will live past 90.2 And one in 10 will live past 95.2 And it is not unusual to develop at least some health challenges in one’s golden years. So, planning today for a potentially lengthy retirement can be challenging. But it’s necessary. Especially if you want a retirement that you can genuinely look forward to.
Free “retirement calculators” available on the Internet may be useful to get a sense of the scale of funds you will need, but be aware that these tools may not be configured to enable you to consider all of the factors that should go into retirement planning. Likewise, providing for a spouse or other loved one who has a stroke, develops Alzheimer’s, or is struck by some other calamity can put tremendous stress on retirement savings. Have you planned for the possibility of having to meet these kinds of obligations?
While it is impossible to plan for every eventuality, the best advice is to consult with your accountant and financial adviser, and with your physician with regard to potential medical risks, to help adequately prepare you to deal with a wide range of scenarios that might impact you during your retirement years. The type of investments you will need will vary by individual, but they may involve a range of asset types that provide for a high-quality income stream that is stable enough to depend on during an uncertain future. And one that is sufficient for you to enjoy the retirement that you have worked so hard to secure.
1 “New LIMRA Secure retirement Institute Study Reveals Majority of Workers Save Only Enough to Equal the Employer Match”. LIMRA, February 24, 2016. Accessed online on June 21, 2016 at http://www.limra.com/Posts/PR/News_Releases/New_LIMRA_Secure_Retirement_Institute_Study_Reveals_Majority_of_Workers_Save_Only_Enough_to_Equal_the_Employer_Match.aspx.
2 “Calculators: Life Expectancy”. Social Security Administration. Accessed on July 12, 2016 at https://www.ssa.gov/planners/lifeexpectancy.html.