The first principle is to go into retirement with a plan. Retirees should answer the following questions:
• What, if anything, do I wish to pass on to my heirs?
• How long do I need to make my money last?
Only when these questions are answered will it be possible to plan for success and successfully deal with obstacles along the way.
The first obstacle is longevity risk. This is the risk that you will run out of money before you die. You may consider putting a portion of your nest egg in an annuity, which guarantees a certain amount of income for life. The downside, though, is that if you die early, you don’t get to pass on your annuitized assets to your heirs.
The second major risk is inflation, which will eat away at your buying power over time. Most people use an inflation estimate of three to four percent for planning purposes. Inflation rates during the 1970s topped 7 percent, however, resulting in significant erosion to savings during that period of time. To help beat inflation, consider the following options.
• Tips or Treasury Inflation Protected Securities. These are U.S. bonds whose yields are adjusted to reflect inflation.
• Stocks. Remember, a 65-year-old retiree in good health can expect to live another 20 years or more. So it still makes sense for many retirees to invest a portion of their portfolio for growth. Although past performance is not indicative of future results, no one who has held the S&P 500 for any 20-year period since 1926 has ever failed to beat inflation.
The final piece of the puzzle is to work out a disciplined approach to withdrawals. Contact me today, so we can help you work out a realistic withdrawal rate and an annuitization plan tailored to your unique needs and goals.
For more information, please call Brian P. Jacobs at 661-290-2022.