Planning for a Long Retirement

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by Advice Chaser
by Advice Chaser
silhouette of two person sitting on chair near tree

On February 23, Advice Chaser hosted a webinar by financial advisor Mike Capriotti on the topic “Making Your Money Last Through Retirement.” The frustrating thing about retirement planning is that none of us can be sure how long our retirement will last. We all hope to live a long time, but we don’t want to outlive our savings.

Luckily, it’s possible to plan for a retirement of any length. Reducing healthcare costs, withdrawing only a limited percentage per year, and purchasing annuities are a few strategies that can help.

Live Long and Prosper

The first step to a long retirement is making sure you live that long. Looking out for your health both increases your odds for living a long time and saves money on healthcare expenses. Before retirement even starts, you can take care of your health by keeping mentally and physically active, eating a healthy diet, and kicking bad habits like smoking.

Not only will these choices increase your lifespan and quality of life, they’ll save you money on healthcare. Once you qualify for Medicare, evaluate your coverage every year and make sure you have the right supplemental coverage. A policy that includes long-term care is a smart option: 52% of seniors will end up needing it at some point, and you don’t want to pay for it out of pocket.

The 4% Rule

Overspending in retirement could be a disaster, leaving you short on funds right when your health is the worst and you need it more. But you shouldn’t have to live like a pauper during your golden years, either. One rule of thumb says that you should take 4% of your retirement funds out your first year of retirement, and then the same amount, adjusted for inflation, each year thereafter.

This rule doesn’t always hold true, however. If your portfolio continues to do well after retirement, it might make sense to increase what you withdraw in later years. Or, if you have a backup plan for the last years of retirement, like an annuity, you may be willing to take more of a risk on outliving your retirement fund.

A Safety Net for a Long Retirement

Annuities replace a lump sum of money with a monthly or yearly payment. That way, you don’t have to worry about what you take out, because the annuity is guaranteed. Social Security payments are effectively an annuity: a set payment regardless of how many years you live. Delaying the start of your Social Security payments until you’re 70 years old will increase the amount by 32%. So if you’re concerned about outliving your money, taking a late start to Social Security can leave you with a much higher income, even if you run out of savings.

You can also purchase an annuity. There are two types: immediate and deferred. With an immediate annuity, you start receiving payments right away. That can provide a steady income stream. A deferred annuity starts at a date you choose. So if you know you have enough money to last from 65 to 85 years old, you can purchase an annuity that starts when you are 85. If you don’t live that long, the company that sold you the annuity makes a profit, but if you do, you can receive payments as long as you live. Consider it insurance for a long life.

Annuities aren’t for everyone. They have fees, and the amount you receive could be less than what you withdraw from your account on your own. Talk to your advisor about your individual circumstances.

Start Planning Your Long Retirement Now

Planning for a long, prosperous retirement doesn’t happen overnight. Now is the time to find a financial advisor and start making your plan. For an easy way to educate yourself on your options, watch the recording of our webinar on YouTube.

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