The 60 Second Retirement Plan

While no one plan fits every situation – and you should certainly spend more than a minute formulating an actual plan – the hardest part about anything is getting started.

If this motivates you to take your first step, its worth it.

1) Lower your expenses. Don’t let your upkeep be your downfall. Get rid of debt. If you plan to downsize, do it sooner than later. Don’t bum out about downsizing. Even if you’re rich, “simpler” is better and you’ll likely be happier anyway.

2) Use “guaranteed” income to cover BASIC living expenses. This will keep you from blowing your nest-egg on groceries. There are basically three types of guaranteed income: social security, pensions, and annuities. Figure out your basic bills, and pay as many of them as possible using guaranteed income.

3) Protect against healthcare costs. Attend a Medicare “educational event” and learn how Medicare actually works. Medicare educational events are free and presenters aren’t permitted to try and sell you anything.

4) Plan for “extended” or “long-term” care expenses. Who really loves you and would drop everything they were doing to take care of you? Without a plan this is the person who ends up getting hurt the most! Learn about “asset based” long-term care policies. Underwriting is easier and heirs can get your money back if you don’t use the coverage.

5) Protect against inflation. If you follow STEP 2 and cover your BASIC expenses with guaranteed income, you can leave more of your nest-egg in growth mode. This affords you a critical hedge to protect against inflation over time.

6) Study and focus on fulfillment. It’s not only how long you live, but how well you live. Stay productive. Keep learning. Keep experiencing. Be grateful. Make the most of each day and don’t become a curmudgeon. Set an example and age with grace.

Questions, thoughts, comments? You can reach me directly here or by posting a comment below.

Here’s wishing you a secure and happy retirement!

How long will you live?

Everyone hopes for a long and happy life, but did you know economists actually consider living too long to be a risk?

They even have a name for it, “longevity risk.”

It is the condition of living so long that you end up outliving your money.

Find out your average life expectancy using Social Security’s “Life Expectancy Calculator”.

Because no one knows for sure how long he or she (or a spouse) will live, the issue of life expectancy can complicate retirement planning. Think of it like trying to plan a dinner party without knowing how many guests are going to show up.

The good news is, with a few simple planning steps, most of the worries surrounding this issue can be solved.

Facts about the “risk” of living too long,

  • People are living longer now than ever. Improvements in medical technology, disease prevention, treatment, and management have lead to longer and longer life spans.
  • How long can a person live? The answer is really unknown. So far, the oldest living person on record was Jeanne Calment of Arles, France. Jeanne died in 1997 at the age of 122.
  • What is the average life expectancy for U.S. retirees? If you are 65 today, average life expectancy is 84.3 for a man and 86.6 for a woman. Note…these are only averages, so half of the population will live even longer!
  • Marriage is a factor. Married people retiring today have about a 50% chance that at least one member of the couple will live to age 92.
  • Women are more at risk. Because women live substantially longer than men, they are much more likely to become impoverished in older ages.
  • Your precise risk is unknown. An individual person’s exact longevity risk is difficult to determine because it is derived from a mix of factors including, available retirement funds, rates of return on future investments (or market losses), retirement spending rate, inflation, future medical expenses, family health history, and lifespan.

How to solve the problem of longevity risk?

The most important factor for overcoming longevity risk is having enough INCOME to pay your basic living expenses in retirement – especially guaranteed-for-life income that lasts no matter how you live and adjusts for inflation.

For most retirees, guaranteed life income comes from three major sources:

  • Social Security
  • A company (or government) pension
  • Life annuities

Click here for a simple way to calculate how much income you need in retirement and learn FIVE ways to make the cost of retirement more affordable.

Often, people end up combining several sources of income to achieve their retirement goals. The idea isn’t necessarily to have all of your income come from guaranteed sources, but enough to cover your basic living expenses and give you peace of mind. Studies show that retirees with more guaranteed income have less stress and more enjoyable retirements.

So what do you think?

Have you ever thought living too long could be a risk? Do you know of anyone who has outlived their money? What about the issue of women being more at risk? As a husband and a father, I do not want to leave the risk of my wife suffering poverty in very senior age to chance.

Feel free to email me comments or questions. You can also post comments below.

Why income beats savings in retirement

Imagine yourself far in the future. Yesterday, you celebrated your 82nd birthday! It was an enjoyable day spent with family and friends followed by a relaxing dinner with cake, ice cream, and many happy memories.

But this morning you awoke to some troubling news…

When you clicked on your favorite news app, you learned that an overnight far-eastern currency concern has sent U.S. markets into a tailspin.

As the next several days go by, market conditions rapidly deteriorate. The damage even begins to spread to other sectors. Both real estate and bonds start taking substantial hits.

Logging into your online brokerage account, you watch your account balances dropping more and more each day. Years and years of hard-earned savings are vanishing before your eyes.

You ask yourself, “Is this ever going to end? Should I be selling? Should I be staying put? Will my retirement funds be able to survive this latest ‘correction’? If not, how am I going to pay my future bills?”

This story is just a sample of the kind of worry that can arise when long-term retirement income is based solely on invested savings and systematic withdrawals from savings.

Do you currently have only a 401k plan and no guaranteed company pension?

Then, someday, this could be you…

The good news is, however, with a few simple planning steps, there are ways you can help reduce or even eliminate many of the above concerns. In fact, it can even be possible to establish a foundation for a reliable and worry-free retirement income.

The key to doing so is locking down enough guaranteed retirement income to cover your basic future expenses.

Guaranteed income is money that will be paid to you no matter what happens in future markets and no matter how long you end up living. Guaranteed income can be derived from a variety of sources including a combination of Social Security, a company or union pension, and life income annuities.

How much retirement income will you need?

Many planners point toward a “target” for retirement income that is equal to roughly 70% of a person’s pre-retirement income. In general, the more “base income” a person has from guaranteed sources, the easier time they will have meeting ongoing expenses in retirement. Studies show that individuals with more guaranteed income during retirement are also known to be happier and have less stress in their senior years.

How to create a successful retirement income plan

The fundamental elements of building a solid income plan for retirement are as follows;

  1. Reduce your long-term retirement living expenses where possible (downsize, simplify your life, pay off any mortgages or consumer debt).
  2. Establish an emergency fund for short-term cash needs (set aside the equivalent of six months to a year of income in an easily accessible FDIC-insured bank account).
  3. Calculate your NEEDED retirement income using the 70% rule or other similar method.
    (pre-retirement income = $100,000. 70% of $100,000 = $70,000)
  4. Add up ALL the income you will have from GUARANTEED sources such as Social Security, pensions, and life annuities.
    ($46,000 Social Security + $0 company pension + $0 annuity income = $46,000)
  5. Subtract your GUARANTEED income from your NEEDED income. This is your income “gap.” ($70,000 – $46,000 = $24,000 income gap)
  6. Click here to learn more about ways to fill your income gap!

Once funding for your basic income needs is set, you can think about allocating your remaining assets for future savings, special purchases, investments, and legacy planning (i.e. money that you plan to leave to kids, grandchildren, or charity).

For most people, covering basic retirement living expenses through guaranteed income will be better than relying on savings. Guaranteed income takes uncertainty out of affording your monthly bills and removes stress about what will happen to your savings in future markets. Guaranteed income also simplifies planning and assures you will receive a “check” each month no matter how long you our your spouse may live.

When added together, the benefits of guaranteed income help lead to a happier, more secure, and more relaxing retirement.

So, what about you? Do you worry about how to create income for your retirement? Do the potential ups and downs of the market bother you? If so, what is your plan to solve for this problem?

Let me know your thoughts by email or in the comments below.