Americans are living longer than ever, which is mostly great news for retirees and those nearing retirement. This means you’ll have more time to enjoy your grandchildren, help your community or travel the world. The downside is that many retirees are faced with the problem of outliving their savings.
There’s no shortage of how-to articles on investing but when it comes to how retirees can create income streams that will last a lifetime, it gets complicated — especially if you’re not wealthy.
According to a 2018 poll conducted by Gallup, more than 45% of Americans are worried about running out of money in retirement — including 35% retirees and 51% non-retirees. A survey by Employee Benefit Research Institute found that nearly 66% of workers have little to no savings for retirement, a 10% decline from 2009’s 76%. This is cause for concern because the great recession is over ten years ago and still many people are not saving for retirement.
With advances in medicine and healthcare, it’s becoming easier for people to live to 80 years of age or longer. For most Americans retirement is likely to span nearly three decades, and finding income streams that will last that long is a significant challenge.
Social Security provides a safety net for most retirees, but with an average monthly Social Security benefit at $1,365, it’s going to be very tough to live off of Social Security alone.
If you’re not flush with cash reserves, the best strategy is to look beyond Social Security and find alternative income sources. Here are five strategies to help you create income streams that will last through your retirement:
- Have a retirement plan. If you have one, make sure it’s set up to work for you.
Seems like a no-brainer – but as the stats above suggest, many people are simply not planning adequately for the future. One of the best ways to ensure that you don’t run out of money in your golden years is to start a retirement plan. Waiting for the perfect time to implement a savings strategy can negatively impact your ability to retire on your terms. Speaking with a retirement adviser is a good way to validate that you are indeed making the right decisions with your retirement savings. If you don’t already have a financial advisor – consider speaking to one.
If your current advisor hasn’t provided you with a clear roadmap for the future — it may be time to get a second opinion from a local fiduciary advisor that is required to place your best interest first. A fresh set of eyes may offer new opportunities and put you on a trajectory that is optimal for your goals.
Many financial advisors use a ‘set it and forget it’ methodology for implementing retirement strategies (Passive). Although this cruise control approach to managing investments works for some, others could benefit from a more active portfolio. If you are just started the process of implementing a retirement plan, it’s important that you ask yourself the right questions — such as:
How much do I really need to save for retirement?
Will my nest egg last through retirement?
Should I consider LTC (Long Term Care)?
Is an annuity right for me?
When should I start receiving Social Security benefits?
Understanding how the answers to these questions impact your life in retirement is critical, and failure to plan accordingly can derail the best of plans or intentions.
- Don’t take social security earlier than necessary
It’s imperative that you familiarize yourself with Social Security and learn how things work so that you can net the most from this benefit. As women tend to claim benefits earlier than men, this advice is especially important for them.
One of the most reliable sources of income for most retirees is social security. Data has shown that Social Security benefits make up about 39% of most retirees’ income in retirement. A survey by Nationwide Retirement Institute found that more than 14% of women received social security benefits before retirement and only 3% delayed receiving social security.
According to Data supplied by the Social security Administration, if you start receiving Social Security at age 62 as opposed to 66, your benefits would be decreased by 25%, and if you claimed benefits at 63, your benefits will be reduced by 20%. In short, your benefits will be reduced according to the number of months you claim Social security before reaching full retirement age.
As most women earn less than men, it means fewer savings and more retirement risk. By delaying retirement women can make up for the lost income or reduce the chances of depleting their nest eggs too soon.
- Consider buying an annuity
An annuity can provide you with a reliable income in retirement. Many annuities offer guaranteed income for life, which can help protect investors from outliving their savings and against inflation. The new guidelines by the IRS and U.S Treasury department highlight how employees can use annuities in their 401(k) accounts, making it easier for workers to access annuities.
Target day fund is the default investment option offered by many employers. With the new guidelines, employees now have better ideas about how to use part of their savings to buy annuities while also investing in other securities.
Using part of your savings to buy an inflation-protected annuity can be a great way to boost your income, especially now that many securities are prone to market movements and a number of other risks.
- Work longer
Working longer allows you to delay tapping into your savings while you build your nest egg. It also could be good for your health. A study by Oregon State found that “people who worked longer, lived longer.” While working longer can help boost your financial security, it can also improve your overall well-being.
Working longer does not necessarily mean you should take on full-time roles or take on a job that stresses you out. If you search in the right place you might find a job that’s fun and pays well. You can explore online job portals for a good retirement job or look in your community for a job that’s a good fit for you.
- Start saving early
The earlier you start saving the better. A $1,000 saved today, if invested wisely, could grow to a substantial sum in the months and years ahead. There is no doubt that saving can be daunting, especially if you’re far away from retirement. If you’re finding it difficult to start saving, you might need to reflect on what’s hindering you and with some discipline and effort, saving will become easy and second nature.
Many employers have 401k programs to encourage saving and some employers even match your contribution dollar for dollar. Find out if your employer offers this type of program and consider taking advantage of it.
There are many other ways to create income streams in retirement, like investing in real estate and other alternative investments. Whatever you decide is best for your retirement strategy it’s important that you start saving now. If you have questions on how best to implement a retirement plan, consider attending one of our upcoming retirement workshops – or contact David Ortiz directly to get timely, no pressure advice.