LIVING LONGER, RETIRING LATER | less risk, more money

July 10, 2023

Although imperfect, the proverbial “three-legged stool” of retirement — Social Security, private pensions and personal savings and investments — has historically supported many Americans, however, things have changed. Today’s longer periods of retirement, combined with Social Security’s financial challenges and the decline of defined benefit plans, or, Pensions,  in favor of defined contribution plans, 401k’s), have begun to disrupt that model.

As other recent reports have warned, by some key measures, the U.S. appears to be heading from a retirement “crisis” to a retirement “catastrophe.”according to an in-depth new report published by BlackRock and the Bipartisan Policy Center, adding guaranteed lifetime income (annuity) combined with a more aggressive asset allocation can generate an additional 29% in a typical person’s annual spending power from accumulated retirement savings, excluding Social Security.

The Numbers To Know:
  1. 10,000 Americans are turning 65 years old daily as of January 2023.
  2. There are roughly 63 million Americans on Social Security and Medicare today.
  3. 74 million Baby Boomers in America today (born between 1946 and ’64).
  4. 66 million Generation X’ers Americans (born between 1965 and ’80).
  5. This provides us with a 3 to 1 picture. Three taxpayers for every recipient. By 2040 we will have a 1.5 to 1 picture.

Can we really rely on government paid programs as we all age? Wouldn’t it be better to take less risk, and have the same or better return results?

“I moved 60% of my 401k to Government Bond Funds and 40% into the Blue Chip Fund.”  That’s a familiar move, but proven not to withstand longer less risky allocation options which provide better results. How? Referring to the guaranteed lifetime income approach combined with more aggressive allocation. Taking this approach also reduces downside risk by as much as a third when compared to a standard uninsured retirement portfolio of 60% fixed income and 40% equities, researchers say.

The research appears to be dead-on, living longer and working longer is the totality of these factors, plus that uncertainty of mortality, compound the complexity of determining optimal retirement spending. The ‘thief’ here when trying to figure things out is inflation, taxes as well, but the inflation-factor is almost overlooked. In other words hitting on American’s number one concern; Outliving our retirement funds comes to the forefront. People believe that delaying retirement or working during retirement will compensate for a lack of savings, but countless other factors, from unanticipated health problems to shifting macroeconomic conditions, can interfere with that plan.

SUMMARY: Solutions & Suggestions to look into today:
  • Combining a limited-risk annuity, one with a floor and a ceiling, allocation can increase spending power in retirement by 29% a year, new research finds.
  • The researchers also found that delaying Social Security from 65 to 67 can support 16% more annual spending with 15% less downside risk.
  • Have you looked into building an optimal retirement income strategy that considers the totality of the retirement income toolkit.
  • What if you think you’ll work longer, but your/your loved one’s healthcare demands you retire? This can cost $75,000 to $150,000 annually (as of 7-23).
Is there a better way to allocate your assets, with less risk? What about rolling ‘old’ 401k money into your ‘new’ 401k instead of an IRA? What’s best for you and your personal plans today? Contact: [email protected]