How to plan for income in retirement


Imagine you have retired and that you live longer than you ever thought you would. Prices are rising but you don’t want to risk your investments to keep up. Many today are beginning to see this as a reality. The financial threats that American retirees face now are different from any time before. The retirement years of today’s retiree will be unlike any time previously experienced. It is essential to be prepared.

Life expectancy had increased to age 63

Let me explain some of the reasons behind these massive changes. In 1900, the average life expectancy of a male was age 46. This means a 40-year-old would have been considered old. By the time Social Security was introduced in 1936, life expectancy had increased to age 63. Today, a married couple aged 65 has a 40% probability for one of them to live to age 95.

Our world is rapidly changing and advancements occur at a fast pace. These changes affect our life expectancy and quality of life. Just think of the advancements that have occurred in the last 100 years. Today, someone in their 40s is considered to be in the prime of life. In contrast to the year 1900, today’s 70-year-old resembles the then 40-year-old. Retirements that last 30 or 40 years are becoming commonplace. As retirements grow lengthier, one of the great challenges retirees face is making their income last the entire time. As prices continue to rise, inflation creates another challenge.

Retirement income guaranteed

Historically, between Social Security from the government and corporate pensions from employers, individuals used to have up to 2/3 of their retirement income guaranteed. Today’s soon-to-be retirees and those currently retired live in a very different world. Social Security is in the news constantly with threats that massive changes to that system will have to occur. In fact, on the front page of your Social Security statement, it says, “In 2016 we will begin paying more in benefits than we collect in taxes. Without changes, by 2037 the Social Security Trust Fund will be exhausted and there will be enough money to pay only about 76 cents for each dollar of scheduled benefits.”

What about corporations? Most corporations have discontinued pension plans and replaced them with defined contribution plans, shifting responsibility to individuals. What is the result? Retirees can only expect that about 1/3 of their retirement income will be guaranteed. More than ever, a plan for structured income is needed to achieve security in retirement.

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