One of the biggest fears people have is running out of money in retirement. And for many Americans, this is a very real risk, not an irrational phobia.
If you are a reasonably healthy 65-year-old non-smoker, actuarial tables estimate you’re likely to live to age 86, as a man, and 89, as a woman. And the longer you live, the longer you can expect to live. A 90-year old non-smoker has a good chance of living to age 95, as a man, and a 97, as a woman.
However, there’s no need to worry your way through retirement in a state of self-enforced poverty and extreme frugality. Follow these strategies to have more spendable income in retirement, and never run out of money!
#1: Stay healthy and active.
According to Fidelity Investments, a couple who retired in 2017 will spend an average of $275,000 for health care costs throughout retirement. Poor health is expensive in every way imaginable, taking a heavy mental, emotional, and financial toll.
Move more. Inactivity costs individuals, employers and the governments as much as $28 billion annually in medical costs and lost productivity, according to a study cited by The New York Times. Exercising for 30 minutes 3-5 times per week can make a measurable difference in health and vitality.
Add color to your meals. To reduce your risk of cancer and heart disease, eat more fruits and vegetables.
Quit or moderate negative habits. Eliminate bad habits such as tobacco use or over-indulging in sugar, junk food or alcohol.
Think positively. A recent Harvard study found that “optimistic women” had nearly a 40% lower chance of dying of heart disease or stroke and a 16% lower risk of dying from cancer. Multiple other studies show that optimistic people of both sexes live longer and have less heart-related illnesses.
Exercising regularly, eating well and maintaining a positive attitude will save you money and—even more importantly—help you enjoy your life!
#2: Save more.
The average American saves less than 5% of their income. Some Americans have no savings at all, or they have debt instead. Some people invest but neglect to save and raid their retirement accounts—paying penalties and taxes—for every emergency.
We recommend saving 20% of your income. That might sound intimidating or even impossible, but it’s not.
Start saving—even if it’s 5 or 10% to start, and work your way up as you can. The key is to increase your saving—not your spending—as your income and financial capability increases. Save more money, and you’ll have liquidity for opportunities as well as emergencies. You’ll end up with more money to invest, without compromising your savings.
#3: Keep working, contributing, and earning.
According to the Social Security Administration, approximately one out of every ten people turning 65 today will live past age 95. Nearly half—43%—of retirees underestimate how long they will live by 5 or more years, reports the Society of Actuaries. And yet, Census Bureau figures show that the average age of retirement is only 63. How many people have saved enough to live another 30 or more years without earning income?
The impact of longevity and low savings rates combined with too-early retirement can be devastating. Many people are retiring without the financial capability to remain independent—one reason why we don’t recommend a traditional retirement. Work can also provide people with purpose and with their primary social interaction.
Another tremendous benefit of working longer is that you can maximize your Social Security income! Too many people take Social Security too soon and regret having a lower income.
If you don’t enjoy your work, the thought of delaying retirement may lead to despair. But when we say “don’t retire,” we mean, “Find work you LOVE and do it for as long as long as you want.”
It doesn’t have to be full-time work. Perhaps you’ll work part-time or seasonally. Maybe you’ll freelance and volunteer on the side. Perhaps you’ll consult, become a travel blogger, or work virtually. Just keep your mind active, keep contributing your wisdom and skills, and keep earning!
#4: Reduce risk with asset allocation
You may have heard the joke about how 401(k)s “became 201(k)s” in the Financial Crisis. People who planned on retiring saw their investments plummet as much as 50%. “Easy come, easy go” should not be a phrase that applies to your investments! But the problem is this: most people’s portfolios are comprised of nearly all stocks, and stocks are subject to systemic risk.
For investors with truly diversified portfolios, the “Great Recession” was more of a speed bump than a roadblock to retirement. Reduce your risk by investing in diverse asset classes and financial instruments, such as:
- private lending such as bridge loans
- cash-flowing real estate
- business investments
- alternative investments such as oil and gas
- life settlement funds
- high cash value life insurance
#5: Raise financially independent children.
From childcare, clothes and food to college expenses, it’s expensive to be a parent (but worth it!) After a couple of decades your financial support should no longer be required on an ongoing basis, and you’ll have more to save, invest, or spend. Unfortunately, some parents keep spending resources on adult children who remain dependent and are still living at home. To avoid this trap, help your kids to learn responsibility and independence from a young age. Encourage them to earn money through chores, babysitting or a part-time job, save gifts of money or a portion of their allowance, and make wise choices with money.
#6: Focus on cash flow, not net worth.
Typical financial advice helps you accumulate assets in a brokerage account, but too often, financial plans neglect how to turn this into cash flow later. Such strategies may be a better retirement plan for advisors with “assets under management” than for YOU!
When interest rates dropped recently to historic lows, retirees faced hard choices. Should they scrimp and save to live off of “interest only”? Consume equity and risk outliving their savings? Keep the bulk of their investments in equities and pray that stocks will somehow keep going up?
It’s best to “practice” creating cash flow with assets before you must rely on the income from investments. It’s good to accumulate assets, but you must also have reliable strategies to turn assets into income.
#7: Consume assets strategically.
The amount of money accumulated in assets isn’t as important as the amount of spendable income produced by those assets! By accumulating the right assets and spending them in the right order, you might end up with hundreds of thousands of dollars extra in your pocket!
By strategically consuming assets in the most efficient way, you can:
- dramatically reduce taxes
- increase your cash flow
- protect yourself from market swings and low-interest rates
- increase your net worth and leaving more to heirs
For instance, replacing bonds in your portfolio with high cash value whole life insurance can make a multiple six-figure difference in future spendable income.
Want a Strategy for More Income in Retirement?
Let’s talk – give us a call at 574-234-1980 or contact us at hello@Neeserinsurance.com. We’d love to show you how you CAN “live long and prosper!”
