Many Americans are now living to age 100 and beyond, and while this is a positive trend, it can present financial challenges. Living a long life means planning carefully to avoid outliving your savings. To help ensure financial security in retirement, it’s essential to prepare for a longer lifespan, especially if your parents lived long lives. Even if they didn’t, healthier habits might mean you could need to fund a retirement lasting 30 to 40 years.
Here are five tips to help you prepare financially for living a long life:
Delay Claiming Social Security: It’s beneficial to delay claiming Social Security until as late as possible, ideally until age 70. By delaying, you can increase your monthly benefit by up to 8% for each year you wait. Concerns about the longevity of Social Security are common, but the government is working to ensure benefits remain available.
Consider Buying an Annuity: Annuities can provide a steady income stream for life, similar to a pension. If you don’t have a pension, you can create one with an annuity. Fixed immediate annuities can provide income right away, while deferred income annuities allow you to receive payments later in life, ensuring you don’t outlive your savings. Recent policies also allow you to defer taxes on up to $125,000 of a retirement account invested in a Qualified Longevity Annuity Contract until age 85.
Explore Long-Term Care Insurance: Long-term care can be a significant expense, and Medicare and Medicaid may not cover all of it. Long-term care insurance helps cover nursing homes, assisted living, or home care costs. It’s a good idea to consult with a financial advisor to see if this type of coverage makes sense for you.
Be Mindful of Withdrawals: The general rule is to withdraw no more than 4% of your savings each year in retirement. It’s important to work with a financial expert to develop a personalized plan and, if possible, continue working and saving in the years leading up to retirement.
Understand Medicaid Benefits: Medicaid can help cover the costs of care later in life, but qualifying can be complex. You may need to reduce your assets or meet other requirements, so consulting with an elder law attorney can be helpful in navigating this process.
Planning for financial longevity is essential, and making smart decisions now will help ensure you don’t outlive your resources. If you have questions about annuities or retirement planning, consider speaking with a financial expert to explore your options.
