Alisa Wolfson
10 things to think about to help make sure you have enough money for your golden years.
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Having $1 million dollars isn’t what it used to be — at least according to wealthy Americans. Indeed, 33% of wealthy Americans (those with more than $1 million in investable assets) think it’s possible they could outlive their savings, according to new data from Northwestern Mutual’s 2023 Planning & Progress Study. So we asked experts: How do you help ensure you won’t outlive your savings?
1. Make a financial plan
“One of the best strategies to prevent you from outliving your savings is to create a financial plan so that you do not leave everything to chance but rather know where you are financially today and where you want to go,” says certified financial planner Alonso Rodriguez Segarra at Advise Financial. A comprehensive, holistic financial plan should cover financial goals, budgeting and cash flow planning, a retirement plan, insurance coverage, tax planning, estate planning and more.
To have a financial plan drawn up, you’ll want to seek out a fee-only financial planner, who tend to have fewer conflicts of interest when recommending financial products to you. Then, select the type of adviser you might want: Advisers work under three main fee structures, including a flat-fee adviser, an hourly adviser or someone who works based on the amount of assets they’re managing for you, known as an assets under management (AUM) arrangement. This tool can match you to a financial adviser who meets your needs.
Flat fee advisers tend to cost between $2,500 and $10,000 and will create a large financial plan for you for that money; hourly advisers range from $150 to $450 per hour; and the ballpark fee for AUM advisers is roughly 1% of assets under management. If you’re only looking to have someone create a financial plan, opting for a flat-fee adviser will likely yield you the most economical result.
2. Look closely at what you’ll spend in retirement
Pros say you must understand what your lifestyle expense needs will be in excess of what is covered by Social Security and pensions. “That amount plus taxes would be the amount you would withdraw from savings, so then the question becomes do you have enough to potentially cover 30+ years of withdrawals,” says certified financial planner James Daniel at The Advisory Firm. In estimating expenses, consider how your needs may change in retirement and account for healthcare costs, long-term care, travel needs and more.
Need some rough estimates here? “Plan on spending 3% to 4% of your investment portfolio per year in retirement and contribute to all 3 buckets of investments — pre-tax, after-tax and tax-free. This will provide you with flexibility when it comes to generating the lifestyle cash flow you need in retirement,” says certified financial planner Bruce Primeau at Summit Wealth Advocates.
3. Think about longevity
One thing you can do to better gauge your lifespan is to consider your family’s longevity. “A study published by the Journal of the American College of Cardiology found that the risk of death was 17% lower for each decade that at least one parent lived beyond the age of 70 years,” says certified financial planner Rosario Chacón at Wealth-Source Financial. Of course, this isn’t going to be perfect, but can help directionally.
4. Start as early as you can
“Saving needs to be part of your plan from the beginning and you can’t plan on playing catch up in later years. Save aggressively as early as possible to best leverage the power of time,” says Primeau. He notes that you should invest aggressively in stocks and then dial back your aggressiveness with CDs, high-yield savings accounts and Treasury bills to preserve capital as you approach retirement.
Once you’re 50, you can make additional catch-up contributions of $7,500 to your 401(k) to help you reduce your tax bill and boost the value of your portfolio.
5. Consider an annuity
Annuities can help protect against outliving your savings. “They’re the logical solution if someone is afraid of outliving their savings. I only have a few clients that have them; however annuities in general are income streams you can’t outlive. Whether that income stream is enough is a different question,” says certified financial planner Scott O’Brien at WorthPointe Wealth Management.
To find the best annuities, consider the returns and income generated, look for low fees and think about a product that protects your investment from potential stock market losses. The National Council on Aging offers annuity selection tips and FINRA (Financial Industry Regulatory Authority) has detailed information on what to look for when considering annuities.
6. Get smart about Social Security
If you can wait to collect Social Security and delay taking your benefits until 67 or 70, your benefit amount will increase. Indeed, if you wait til age 70, benefits are 76% higher than retirement benefits taken at 62, according to 2022 research from Boston University economics professor Larry Kotlikoff.
7. Don’t neglect the cost of healthcare — and these other surprise expenses
According to the Fidelity Retiree Health Care Cost Estimate, retired couples will need about $315,000 at age 65 to cover healthcare needs throughout retirement. And note that long-term care (like nursing home facilities) may not be covered by Medicare.
Other surprise expenses older people encounter include major home repairs, transportation and dental care which can prove extremely pricey. Data from a 2023 Kaiser Family Foundation analysis reveals that 1 in 5 Medicare beneficiaries spent more than $1,000 on out-of-pocket dental care in 2016, with 10% of all beneficiaries not getting dental care needed because they couldn’t afford it.
8. Get a part-time job
If you retire and find that cash is seeming tight, could you get part-time work? FlexJobs and SimplyHired offer nationwide positions in various industries.
9. Weigh a reverse mortgage
Reverse mortgages help seniors stay in their homes by paying off their existing loans, but one of the biggest downsides is that it means your home’s equity will diminish as it turns to cash. If you don’t have plans to move soon, you and your spouse are over 62, you meet both financial and physical requirements of home ownership and your home is just an asset and doesn’t have sentimental value, you might benefit from a reverse mortgage.
10. Consider hiring a pro
Not everyone needs a financial adviser but if you’re unsure if you’ll outlive your savings or not, it might be a smart idea to get one. “An adviser can help define one’s goals and coach them to keep and implement the necessary strategies to achieve those goals. Preparing and periodically updating retirement projections to ensure spending levels are appropriate is another way an adviser can add value,” says Primeau.
Ultimately, an adviser acts in two capacities to guide clients through retirement. “The first being an objective analysis of what amount of withdrawals your savings can support and also as a voice of reason along the way to keep you on track throughout retirement. (Looking for a new financial adviser? This tool can match you to an adviser who meets your needs.)
-Alisa Wolfson
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09-20-23 0630ET
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