How Confident Do You WANT to Be That Your Money Will Last During Retirement?

I remember having a conversation once with a woman named “Julie.” She was 62, retirement was right around the corner and despite doing “all of the right things,” she was worried.

Even when she was doing all she could, she was worried that when the time came to retire, she would not have enough money to last the rest of her life.

If you can relate to Julie, I want you to know: You. Are. Not. Alone.

The rules have changed. Recent industry simulations conclude that sustainable withdrawal rates, when your money is invested in the market, range from 2-4% depending on how your money is invested.

Why so low?

Three reasons:

1. When the market loses and you compound that loss with your withdrawals, you have fewer earnings
2. When the market recovers and you withdraw the recovery, it doesn’t move the balance of your account back to your starting point
3. The money has to last your entire lifetime. Who knows how long that will be? You have to be conservative with your withdrawals if you want to help make sure the money will last

How can you take higher withdrawal rates?

Incorporating insurance in addition to investments means you can take advantage of actuarial science, which offers more predictability as to how long the money needs to last. Whether you pass before life expectancy or live to be 100, actuarial science can change how much you can safely spend.

If you plan today – incorporating both investments and an annuity with lifetime income benefits – you may be able to increase your withdrawal rates.

Let’s look at two scenarios.

Bill and Cheryl are both 62. They have each saved $550,000 toward retirement and want to retire at age 67. They would each like to have $40,000 from investments in addition to their Social Security when they retire.

Bill decides to use a Total Return (Draw-Down) approach, while maintaining an asset allocation strategy, withdrawing 4% annually based on his $550,000 today. However, 4% would only generate $22,000, just over half of his needs. To generate the $40,000 from his investment plan, his $550,000 will need to grow to $1 million in five years, or 82%.

Cheryl decides to rely on actuarial science.  She uses a fixed-index annuity to generate the $40,000. The fixed-index annuity guarantees that if Cheryl places $400,000 in today, in five years, the insurance company will begin paying her $40,000 a year for life.

Cheryl is tapping into one of the unique strengths of insurance companies.  Insurance companies can pool risk across tens of thousands of people. With this approach, Cheryl can enjoy the guarantee of never running out of money.

Deciding how to best convert your retirement savings into an efficient income stream during retirement can be a daunting task.

What you hope for is attainable.  We can help.