As you begin to plan for your retirement income, you may or may not have a good picture of how risky retirement income planning can be. The truth is that a frightening percentage of individuals do not have enough retirement income to live comfortably or there is a very real chance you could come up short later in your retirement years.
The scary truth
According to the US Census, the poverty rate for seniors between 65 and 74 is 23 percent. This number rises to 35 percent after age 75. For women, the numbers are even worse – 42 percent of women 75 or above live in poverty. A recent US News & World Report article suggests that bankruptcies among seniors are on the rise. In addition, many who retired have been forced back to work. A recent study by AARP found that the employment rate for those 55 or above has actually increased 9 percent over the past year.
The bull market of the 90’s caused a large number of investors to greatly overestimate the future value of their portfolio for retirement income. Many who retired in the past ten years withdrew far more than they should have. Add to this, the market decline of the last three years, and the result has been a great increase in the number of seniors who thought they had adequately saved for retirement, but are only now realizing that they re at serious risk of running out of money.
Why did this happen?
It wasn’t that long ago when people typically worked their entire career for one employer who provided a pension plan that would give some measure of security to the retiree. Over the last 20 years, the need to save for retirement income has shifted dramatically from the employer’s responsibility to the individual. 401(k) plans are now typically the plan of choice. Unfortunately, these plans do not provide for the lifetime income stream that pensions did.
While the amount of information on retirement income planning that is available to the individual has grown, much of such planning is based on static return and life expectancy assumptions. Reliance on these assumptions could result on a large number of seniors coming up short in the latter years of their retirement. Those that try to manage on their own are likely to find themselves having to reduce their income withdrawals at a time when inflation, and possibly poor health, are driving their income needs higher. Even retirees with large asset accumulations may be ill prepared to handle these risks by on their own.
There are Retirement Income Sources that your advisor doesn’t talk about (or know about) like preferred shares or closed-end funds or Libor range notes, or immediate annuities or use of a reverse mortgage to make life more comfortable. These issues are usually not covered in a publication like Kiplinger Retirement Report because they must keep things simple so that everyone can understand. In fact, we have not yet found a retirement letter that we like and hopefully these resources will fill some gaps for you.
Read about more retirement income sources:
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