In It for the Long Haul

The good news is, you might be around for a while. The bad news is, your money might not go the distance. One recent survey found that 67% of retirees and 61% of workers underestimated the life expectancies for people of their age.¹ Another survey found that if retirees lived just five years longer than they expected, 53% would slash their spending and 42% would dip into funds set aside for heirs.²

Unfortunately, many people have unrealistic expectations about how long they could spend in retirement. And because the basis for a realistic retirement–needs calculation is life expectancy, many people underestimate the amount of money they will need over the course of their retirements.

Playing It Safe?

One problem might be a reluctance to invest in equities during retirement. In a survey of high–net–worth 60–year–olds (nest eggs of $1 million), almost 40% said they were expecting to invest more conservatively in retirement.³ For many retirees, this means investing in fixed-income vehicles. In fact, only 29% of the survey respondents owned stocks at all.⁴

Although people generally invest more conservatively as they age, many investors don’t realize that they may spend up to three decades in retirement. Fixed–income vehicles may not provide the return necessary to keep a portfolio growing that long. Remember that investments seeking to achieve higher rates of return also involve a higher degree of investment risk.

Social Security Solution

One strategy to consider for a long retirement might be to delay taking Social Security benefits, up to age 70. This would give you a higher benefit for the rest of your life. To calculate your breakeven point for delaying benefits as opposed to taking them earlier, visit the Social Security Administration’s Web site at www.ssa.gov/retire2/breakeven.htm.

Also, be careful how much you withdraw from your portfolio every year. As a general rule of thumb, you should keep your annual withdrawal rate at or below 4% to prevent it from depleting too fast. In short, it’s important to take the long view on your retirement. Call today to see how we can help you make sure that your money lasts as long as you do.

1–2) The Wall Street Journal, October 4, 2006
3–4) CNNMoney, August 15, 2006