Date posted: May 7, 2013
The fact that many Americans are living a longer life brings some consequences along with it. As we live longer and think about living longer, we increase our stress over finances and health in the future. The concern about living longer than our money lasts is a very real one, one that many people try to combat with annuities. Stressors in retirement are very real because many Americans have not saved enough money, health care costs are going up as we age and need more care, and the helpful programs of the past face an uncertain future. This includes federal cuts in both social security and Medicare in order to balance the government’s budget. So is the future hopeless? Not at all and in “8 Financial Strategies for a Long Life,” Philip Moeller of U.S. News & World Report tells us how we can better prepare for the future.
No one really wants to cut their spending now, but that is the best way to ensure that you have more money in the future. America’s new normal is the fact that we need to consume less in order to save more and be smart about retirement. This article’s author recommends maintaining investments in target-date funds even in older years. He believes that the best way for older investors to make gains on their money is to remain invested in stocks late in life. A combination strategy with annuities that pay a lifetime stream of income and some money in stocks could be a winning strategy. Next, account for future inflation when making your retirement plans. Whether using an inflation-adjusted annuity or TIPS, be sure that you consider inflation of up to 4% because that can really change your fixed income spending abilities.
Take care of your health. Health care problems will hit you harder than any other problems in old age both financially and physically, so exercising and eating healthy are the easiest ways to try and avoid major health problems in your older age. Plan for your insurance coverages to last longer, whether it be over your lifetime or into your 80′s. You used to be safe having insurance until your 70′s or until your children were grown, but insurance coverage needs to be extended as life expectancies increase. In addition to increasing basic insurance coverage, looking into purchasing long term care insurance or making early preparations of your house if you’d like to live there in your 80′s and beyond. Long term care is ridiculously expensive, so preparing for that well before the care will actually be needed is a good way to protect your finances in retirement.
Longevity insurance is becoming more popular to help with the costs of living when older than 80. These annuity products don’t start making payments until you are 85 or so. It might seem risky to buy this type of insurance because many people don’t live to age 85, but you’ll be thrilled to have the income if you do and longevity annuities are fairly inexpensive when it comes to annuity products overall. Women are at more of a risk of having financial problems in retirement for a few reasons. They typically live longer, many don’t work for a portion of their lives so they have less money saved and lower social security payments, and more women become widows than men becoming widowers. Losing a spouse means around half of the income coming in could be gone, especially if couples are relying heavily on social security. Plan, plan, plan for your financial future and you will be way ahead of the game.
Written by Rachel Summit
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Date posted: March 20, 2011
There are too many Americans who are not considering the effects of inflation in their retirement planning, according to “How to keep inflation from ruining your retirement,” published in The Statesman. In fifty years inflation has caused the median home price in the United States to go from $11,900 to $170,000. Experts predict that fifty years from now you may not even be able to buy a car for that same $170,000. That is why it is so crucial to account for inflation when planning your retirement, whether you are investing in equity linked CDs, annuities, or another product. Nearly 3/4 of those retiring early consider inflation, but that number drops to just over half when you account for all retirees. It is excellent that so many Americans and their advisors are working rising prices into retirement planning, but there are still too many people that aren’t.
For a basic explanation, inflation trends show a 3% yearly increase in prices. If that trend continues, in ten years a retiree will pay $13 for something that costs $10 today and in twenty years they’ll be paying $18 for the same product. Without accounting for inflation when retirement planning, that retiree will run out of money much faster than they might have anticipated. There are some investments and steps to take to protect yourself from inflation and longevity risk.
Treasury bonds that are adjusted for inflation, such as TIPS, can be a good investment because you receive more income as the Consumer Price Index increases. For those nearing retirement, an immediate annuity with an inflation rider is another good way to protect yourself. Your monthly lifetime payments will increase by a specified amount yearly to account for inflation. Wait as long as you can to start collecting Social Security because the delay could increase your yearly benefit dramatically as prices and interest rates increase. By investing in equities, such as equity linked CDS, indexed annuity products, and others tied to common stocks, you can help avert inflation risk. It is also important to manage interest rate risk in your investments when planning for retirement. Speak with an expert to help manage your inflation and interest rate risks.
Date posted: August 1, 2009
In “Feeling TIPSy”, Kerry Pechter wrote about the value of Treasury Inflation-Protected Securities (TIPS) in the Retirement Income Journal. TIPS are a form of insurance against inflation that is sponsored by the government. The principal of these securities is indexed to the inflation rate and their purpose is to let the government take on some of the inflation risk for investors with fixed income. The price of TIPS was all over the place last year since investors didn’t know what way inflation would go with struggling economic markets. While many people believe that the risk of inflation is growing because of all the the economic stimulus plans, there are those who think it could be a decade before a large inflation occurs.
Regardless of the time frame, inflation is a given and TIPS are a great way to protect your 401(k) and other investment vehicles so that you have enough money to comfortably retire. Compare annuities with inflation risk covered and those without and you can see why this rider would be valuable. Not all 401(k) plans or other investments offer TIPS and they are currently the smallest holding in investment vehicles. The main reason to invest in TIPS now, before large inflation occurs, is because of the price. Costs will rise as we see this anticipated inflation actually occur. Putting money into TIPS funds now ensures that your money will work for you as soon as there is a steep rise in inflation.