Last Updated: July 21, 2009
What are the odds of outliving your assets? And more importantly, what can you do to ensure you have enough money for as long as you live?
One way to decrease concern over outliving money, risks of inflation, and other financial hazards is to use some financial assets to generate guaranteed lifetime income, according to a new survey and report issued by LIMRA, the Society of Actuaries (SOA) and the International Foundation for Retirement Education (InFRE).
"Unfortunately, many retirees are not thinking long-term," SOA member Anna Rappaport, FSA, MAAA, said in a press release. "Even among retirees for whom Social Security does not cover their basic expenses, a guaranteed lifetime income, such as that provided by an annuity, is not a core focus of the retirement plans of the retirees surveyed. Among retirees whose core expenses are not covered by Social Security, 31 percent indicated interest in converting a part of their savings into guaranteed lifetime income."
Retirees, to make sure they don't outlive their assets, need to take an "actuarial perspective" in managing retirement risks and focus on long-term goals and challenges, said Rappaport, who helped author the report, "What a Difference a Year Makes." Learn more about the "What a Difference a Year Makes" report.
Financial planners don't disagree, but they do emphasize the importance of having the appropriate building blocks in place first. "I think people have to revisit their financial plan if they have one, or start working on a financial plan if they do not have one," FPA member, Robin Tan, Ph.D., CFP®, of KMS Financial Services, Inc. "It will help them determine first where they are at in terms of their retirement needs and make adjustments such as the percentage of income they are saving annually and try to determine if they need to work longer to support their retirement lifestyle." Often, working a few more years can make a significant difference," she noted.
As for investing, Tan said there is always the struggle between using annuities or putting 60 percent of your money in stocks and 40 percent in bonds, the classic asset allocation recommendation. Tan recommends that you "should at least consider a single premium fixed annuity with inflation adjustment for a portion of your assets, maybe 20 percent to 30 percent, as that may help if you end up living a longer time than expected."
But, as with all things financial, there is no cookie cutter solution to such matters. Deciding how much to allocate to stocks, bonds or annuities is, according to Tan, "an individual decision."
If you are need help trying to figure out how to allocate your assets, or help trying to figure how your financial plan has changed over the past year and what steps you might need to take to realize your financial goals, or you're unsure about investing for retirement on your own, consider searching for and hiring a financial planner.