It’s what
every retirement planner speculates; it’s what every pre-retire dreads; it’s
every retiree’s nightmare – will I outlive my retirement savings? This question
sits on the minds of each and every person associated with the retirement
process, and with good reason.
The U.S.’s current life expectancy is 78.3, up
from around age 50 in the early 1900’s, thanks to modern medical advances and
other factors. But what happens when the economy starts reducing benefits and
increasing the costs of retirement plans and care? And what happens if I die
early? What happens if I die too late? No one can predict every individual’s
future and how they should plan and save, but we can
prepare
for each situation possible. A report1 issued last week by the
Government Accountability Office offers a look at what the experts are
recommending, and how retirees make do.
The Senate
Committee on Aging asked the Government Accountability Office to review three
specific areas and make suggestions: strategies that experts recommend for
ensuring income throughout retirement, choices retirees have made for managing
their pension and assets to generate income, and policy options available to
ensure retirement income. Because everyone’s expenses, income level, health,
and risk tolerance are different, it’s important to understand that there’s not
a single design for everyone to follow. Make sure you talk with your retirement
advisor about the best options for you, and at the same time, keep these
suggestions in mind.
First of
all, retirees should systematically draw down their savings and convert a
portion of their savings to an income annuity to cover necessary expenses. If
you have the option of getting annuity payments from a traditional pension
plan, experts suggest opting for that over a lump-sum withdrawal. The experts
also recommended delaying Social Security retirement benefits until reaching
full-retirement age, and if possible, continuing to work and save.
So, do
retirees actually follow this advice? Typically, no. According to the report,
most retirees rely primarily on Social Security – and many take it before their
full retirement age. Only 6% of those with a defined-contribution plan, such as
a 401(k), chose or bought an annuity when they retired. And fewer and fewer people
having traditional pension benefits available, pointing to the need for policy
proposals educating retirees on the best ways to get the most out of their
savings. What’s more, employee sponsors are getting more and more worried about
potential lawsuits and issues arising if they add annuities to their
defined-contribution plans, further limiting retirement plan options.
So what
should you take away from this report? Even if you’re just starting to save, or
you’re deep in the retirement planning stages, you need to take each and every
factor into account when making decisions. Think about it – if most retirees
rely primarily on Social Security, what happens when the government cuts Social
Security funding? And what happens if they cut funding to government-sponsored
medical care? These are factors that you have to take into account, in addition
to the myriad retirement plans available – annuities, stocks, bonds and pension
plans. Talk with one of our Financial Specialists and devise a plan that will help
you live a long and happy life with your retirement savings.
1 http://www.gao.gov/products/GAO-11-400
This
material was prepared for Wealth Design Group, LLC by Financial Social Media.
