Plan Now to be Ready for Longevity
Longevity is a reality that we all must plan for. A 65-year-old man has a 50 percent chance of reaching age 87, a woman has a 50 percent chance to reach 90, and both are likely to live much longer if they are married.1
To accomplish the retirement you want—even one lasting 30 years or more—think in terms of creating multiple income streams.
Start with the Picture and the Price
Start by developing a practical budget based on a real-life vision of your retirement. Be specific about all the possibilities and costs—from places you’ll live and travel, to your hobbies or activities, to any support you may provide to family members.
Your plan will provide the framework for different income streams to support both “must have” and “nice to have” items in your budget, as well as other retirement risks and expenses. Here’s how it works:
1. Use Guaranteed Income for Essential Expenses (Must Haves). Plan on one or more guaranteed income streams to cover non-negotiable living expenses—like housing, food, transportation, insurance, condo fees, health care costs and taxes—for as long as you live:
- Social Security: Maximize Social Security benefits based on your age, family situation and needs. There are ways to increase long-term income by delaying the start of Social Security payments, but a retiree with a young or disabled child may be better off taking benefits sooner.
- Annuities: An annuity can offer various options for lifetime income, whether it is taken immediately or deferred.
- Pensions: Incorporate these employer-based accounts, if available, in your retirement planning even if they accumulate without your direct participation. Be aware of tax implications and distribution options to make the best decisions.
2. Tap Investment Assets for Discretionary Expenses (Nice to Haves). With an asset allocation based on your goals and risk profile, your investment plan offers the growth potential, flexibility and liquidity you need to accumulate assets over the long term. Since investments will fluctuate with the market, they can provide a good income stream for discretionary spending, such as entertainment, travel and gifting.
3. Account for Taxes and Inflation. Taxes and inflation are a fact of life, so be sure to evaluate the tax impact and benefits of different financial vehicles. Your financial advisor can help you determine the best asset distribution plan considering immediate and future tax implications.
4. Protect from Risk of Long-Term Care Expenses. You need a strategy within your retirement plan to cover the costs of health events, such as a serious illness or an injury resulting in physical or cognitive impairment that may not be covered by Medicare.