Financial Longevity?
Written by Kathryn Savage
What are the financial implications of living longer? How much money will you need to retire, and how will you use it?
A recent report conducted by The New York Times explains that retirees who don’t get pensions these days (many), and retirees of the future who won't get pensions (most) “have to create their own income streams, usually through a combination of Social Security and distributions from retirement savings, including I.R.A.’s and 401(k) accounts.”
So what are some healthy financial strategies you should consider if you are a) in retirement, b) leading up to retirement, and c) won't be retiring for many years?
Convert assets into income stream.
For the retired or recently retired converting assets into income replacement funds essentially translates savings into a paycheck. Using safe withdrawal rates based on client's assets and age, many financial institutions can help clients create percentage-based monthly payment plans. Financial institutions like Fidelity and Vanguard can help clients turn savings into payment plans to last a lifetime.
Won’t the money run out?
The purpose of these funds is to last. The withdrawal rates can be varied or fixed and if varied, say over the course of thirty years, it starts at a low percentage rate (5.01 percent the first year, 10.29 percent twenty years later). Fixed rate payment plans usually stay around 7 percent.
One more thing...
According to The New York Times report, “Annuities are another way to generate paychecks in retirement. After an initial lump-sum payment, annuities can be structured to pay a guaranteed monthly income stream for life, much like a pension.”
Fun, fun, fun?
If you are a savvy saver and lucky enough to have a little money left over after your monthly living expenses are covered, it is suggested that you set a little extra money aside in a separate account for emergency expenses (home repair, medical) and fun expenses (that cruise I mentioned earlier, ballet lessons for the grandkids, a trip to San Juan).
For all you young bucks, start saving!
For the young, though retirement may seem like a distant and highly unfun thing to think about and plan for, it’s a good idea to start saving early. Saving is a habit much like hitting the gym. It's better to get into the habit of saving early, even if it's only a very small percentage of your paycheck. Try setting five percent of your paycheck aside this month. Next month see if you can make it ten. Set up a separate savings account, when the account gets bigger talk to a banker and see what other options you have, like setting up a secure CD or money market account.
Consult a pro.
For the self-employed this is especially true. The best, and easiest thing to do is pay your self first every month. Meaning you cut your savings account a check even before you pay your rent.
Meet with a Financial Planner who can go over your current financial goals with you, and give you some ideas for creative ways to plan for retirement. The best part? Most banks and financial firms have financial planners on staff who are be happy to meet with you for a free financial consultation.
For the full New York Times article on healthy financial strategy, follow this link.
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