People are living longer today with the help of modern medicine and healthy lifestyle habits. This is good news as long as retirees do not become financially indigent, or extremely burdensome on their family members. Greater longevity does require more advanced retirement planning than ever before. If a person retires at age 60 and lives to age 90 or longer, they need an income stream for 30+ years to support them financially.
Accumulation versus Annuitization
From a financial planning perspective, the period of an adult’s life when he or she is working and saving money is called the accumulation stage. When an individual retires, he or she needs to be prepared to enter the annuitization stage of life. In other words, their money now has to work for them and provide an income stream, or an annuity, during retirement.
Retirees have gotten more sophisticated and are demanding more from annuity and life insurance companies. They know their life expectancies are longer and they want a guarantee that they will not outlive their money. In response to these demands, insurance companies are now offering hybrid products that guarantee a certain amount of income for life, and even for a surviving spouse.
Many annuities also now offer riders that provide liquidity if there is a financial emergency. In addition, unlike traditional annuities, many companies now offer death benefits to the annuitant’s beneficiaries. These products are quite sophisticated. Please work with a financial advisor who is familiar with different types of annuities and is an expert in retirement planning.
Ideally, a retiree’s home will be paid off before entering retirement. This strategy provides retirees with peace of mind knowing they will always have a place to live. In addition, overall monthly housing expenses decrease dramatically if any mortgage debt has been paid in full.
If you’re considering an early retirement before age 65, please have a plan in place to ensure you are properly insured from a risk mitigation standpoint. Unforeseen medical expenses are one of the main reasons people erode their retirement assets. I recommend a consultation with an experienced insurance agent to discuss options for both health insurance and long-term care insurance.
Revised Monthly Budget
Finally, I advise my clients to create a new monthly budget for retirement. It will be different than their current budget. Monthly income needs will change after they stop working and have more free time. For example, many people plan to travel much more frequently. Travel-related expenses need to be included in the new monthly budget. Other expenses will decrease. I advise my clients to practice living on their modified budget one year before they actually retire. Then they will know whether or not this new budget is realistic or not.
For more information I hope you will check back in with me regularly and often. I will be providing advice, tips, and encouragement for you to learn how to live your best life possible from a financial standpoint.
If you want to dig deeper and have a much better understanding of how to achieve true financial freedom, then I encourage you to purchase a copy of my newly released book: