According to Merrill, four of the
most common risks to your retirement strategy are:1
- A significant
market drop shortly before or early in your retirement - Inflation
reducing your spending power over time - Unexpected
medical and/or long-term care expenses - Outliving your
assets
If you are nearing retirement, it
might be time to review your current financial strategy and make adjustments,
if necessary. It’s important that you make any adjustments based on your
personal circumstances. If we can help you align your retirement assets with
your objectives and timeline, please give us a call.
Retirement income analyst,
professor and author Wade Pfau defines two schools of thought when it comes to
managing money in retirement. The first is the “probability-based approach,” in
which an individual is comfortable holding equities for growth opportunities
over the long haul. The second approach focuses on “safety first,” which also
utilizes insurance-based contracts, such as life insurance or annuities, that
spread risk across an insurance pool. This strategy basically gambles that some
people will die early while others live longer — but that risk is managed by the
insurer instead of the contract owner.2
However, retirees don’t have to
select just one approach; it may make sense to diversify between the two. With
a probability-based approach, consider investments that are designed to
generate retirement income, such as investment-grade bonds or
high-dividend-paying stocks. However, keep in mind that all investing involves
risk.
The “safety” approach is a good
strategy for helping to cover unexpected expenses, such as long-term care. Not
everyone ends up needing such care, but people who do can deplete their
retirement savings quickly if they choose to self-fund this expense. One way to
combine this coverage with your legacy planning goals is through a life
insurance policy that offers a long-term care benefits rider. This type of
strategy leverages a portion of your current assets to provide a substantially
higher death benefit for beneficiaries. However, you can draw from the contract’s
death benefit if you do need to pay for long-term care. That way you don’t pay
for coverage you don’t need, but it’s there to assist with the costs if you do.3
It’s important to keep in mind that life insurance policies and long-term care
riders are subject to medical underwriting and riders may require an additional
fee.
A good place to start your retirement planning is to check your
Social Security benefit estimate.
The Social Security Administration mails written statements to
people age 60 or older who are eligible for benefits. However, anyone at any
age can check out their statement by registering at the Social Security website
— www.ssa.gov/myaccount/ — for a “my
Social Security” account. Once you have signed up for an account online, you’ll
stop receiving estimates by mail. However, you can check updated estimates online
at any time. Double-check that your earnings history is accurate because that’s
what determines the amount of benefits you’ll receive.4
Once you have a good idea of what to expect in Social
Security, you can start to consider other income streams. Work with an experienced
financial advisor to help you determine the appropriate retirement planning approach
for you.
Content prepared by Kara Stefan
Communications.
1 Merrill. 2019. “4 Big Retirement Risks — and How to
Prepare for Them.” https://www.ml.com/articles/big-retirement-risks-and-how-to-prepare-for-them.html. Accessed Dec. 15, 2019.
2 Knowledge@Wharton. Dec. 10, 2019. “What Will You Need
to Retire with Safety and Security?” https://knowledge.wharton.upenn.edu/article/what-will-you-need-to-retire-with-safety-and-security-lanning/. Accessed Dec. 15, 2019.
3 Merrill. Oct. 25, 2019. “Will You Be Prepared to
Cover the Costs of Long Term Care?” https://www.ml.com/bulletin/will-you-be-prepared-if-you-need-long-term-care.html. Accessed Dec. 15, 2019.
4 Bob Carlson. Forbes. Dec. 15, 2019. “How to Read
Social Security Benefit Estimates.” https://www.forbes.com/sites/bobcarlson/2019/12/15/how-to-read-social-security-benefit-estimates/. Accessed Dec. 15, 2019.
We are an independent firm helping individuals create
retirement strategies using a variety of insurance and investment products to
custom suit their needs and objectives. This material is intended to provide
general information to help you understand basic financial planning strategies
and should not be construed as financial or investment advice. All investments
are subject to risk including the potential loss of principal. Any references
to protection benefits and safety generally refer to fixed insurance products,
never securities or investment products. Insurance and annuity product
guarantees are backed by the financial strength and claims-paying ability of
the issuing insurance company.
The information contained in this material is believed to be
reliable, but accuracy and completeness cannot be guaranteed; it is not
intended to be used as the sole basis for financial decisions. If you are
unable to access any of the news articles and sources through the links provided
in this text, please contact us to request a copy of the desired reference.
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