How to go 40 years without a paycheck
July 7, 2014 by Joe Lucey
Brian Kinney/Shutterstock 44% of all early boomer households are likely to run short of money in retirement.
Here’s a sobering statistic from the Employee Benefit Research Institute to consider: 44% of all early boomer households are likely to run short of money in retirement. In fact, Allianz Life completed a study which found that 61% of respondents were more scared of outliving their assets than they were of dying.
There are a number of factors that contribute to this (including loss of a spouse, inflation/declining purchase power, taxation), but one factor that seems to be accelerating is longevity. Did you know:
- A healthy 65-year-old male has a 50% chance of living to the age of 85
- A healthy 65-year-old female has a 50% chance of reaching age 88
- A healthy couple, both 65, has a 50% probability of one spouse seeing age 92
- There is a 25% probability that one spouse will see age 97
If you retire in your 60s, that’s 40 years without a paycheck.
The baby boomer generation is facing a far different retirement landscape than many of their predecessors did. In the good ol’ days, 40 years of service guaranteed a defined benefits plan, plus Social Security. A retiree’s savings served as a safety net.
Today, with the widespread loss of pensions and employer-sponsored retirement plans, it has become far more challenging to ensure a lifetime of financial security. People are relying on Social Security and their savings — and living longer, as well.
Start with a plan
A secure retirement doesn’t just happen — it’s the product of careful planning, strategic decisions and a disciplined approach.
If you wanted to build your dream home, how would you go about it? Generally speaking, you would start with a vision of what you wanted. From there, you would create a blueprint to work from, a master plan that takes all angles into account. It would be detailed, specific, measured, and carefully considered.
Retirement planning is a lot like building a fiscal house. It’s a blueprint that ensures your future comfort, stability, and independence. And just like a physical structure, a carefully-constructed fiscal house is built to shelter you for those last 40 years — but only if you start with a solid foundation.
Mapping and building your fiscal foundation
The investment industry tends to direct a lot of attention to packaged products as the go-to solution for simple retirement planning, but people who rely too heavily on them can wind up with serious cracks in their fiscal foundation.
Comprehensive retirement planning takes into account a kaleidoscope of risk factors and strategies, investment vehicles and opportunities, and designs a blueprint that maximizes, protects and uses every possible dollar. Most comprehensive retirement planning includes discussions about:
- Social Security—A staggering percentage of all retiring families take it as soon as they can. Unless it’s unavoidable, this is a mistake. Simply put, it weakens your fiscal foundation. By maximizing Social Security and using advanced strategies. Delaying the start of your Social Security benefits or by coordinating spousal benefits using file-and-suspend or restricted applications (link to other social security strategy blogs) can add years to your retirement income.
- Pension Strategies—For many, it makes sense to the straight pension option (income of the retiring worker) and use life insurance to provide for a surviving spouse. For others, it’s better to take a joint payout to last lifetime of two people.
- Annuities —You can create your own personal pension by investing in immediate or deferred annuities, which are widely available with guaranteed income benefits. These can reduce stress on investment portfolios and provide protection against the financial impact of longevity. (Because you don’t want a bank account that expires before you do!)
Your transition into retirement can be confusing and complicated. Forty years without a paycheck can seem daunting and many of your decisions are essential, yet irreversible.
With the guidance of a retirement planning specialist, you can lay a solid fiscal foundation and assemble a framework of decisions that will eventually shelter you well into the future.
