Retirement Income… Or Leave It To The Kids?
One of the major challenges we face when helping people plan for their retirement is balancing the pressing need for lifetime income with the desire to leave an inheritance. These goals are both laudable, but not always compatible.
Inheritance planning presupposes an excess of assets- that is, you have more than enough for yourself and can afford to leave something to your heirs. Heirs too can mean kids, grandkids, or your favorite charity or younger spouse. In any situation, though, retirees need to plan for their own needs first.
What could be worse than becoming a burden on the ones you love instead of leaving them a nest egg?
Poor planning can leave you short of money in a long retirement, and if you’re sacrificing your own needs or relying on others to take care of you while simultaneously hoarding your savings, you’re not doing yourself or your caregivers a service.
Now, the flip side of that coin is that spending recklessly is also a risk.
So where is the balance?
A new study by the Society of Actuaries offers some dense but useful reading on the topic. Not surprisingly, it echoes many of the facts you will find on this site, namely:
Each retirement income solution has its pros and cons, and the amount of retirement income delivered to retirees depends significantly on their choice of a retirement income generator. Because there’s no “one size fits all” retirement income solution, retirees will need to make calculated tradeoffs when considering the amount of retirement income they need based on their individual goals and circumstances.
A few more gems from the report:
Given improvements in life expediencies, the money set aside for retirement may need to last a long time — potentially 20 to 30 years or more. But many retirees are not prepared to manage this critical task on their own. Furthermore, there’s much uncertainty around how long an individual retiree will actually live.
Market volatility complicates the challenge of managing savings in retirement. Since 1987, there have been four major market meltdowns. With retirements potentially lasting 20 to 30 years or more, it’s prudent for retirees to expect and plan to survive more meltdowns in their future.
Many employees don’t know how to calculate the amount of savings that’s needed to generate lifetime retirement income. They often guess at this amount, and usually they guess too low. This results in retirements sooner than financially prudent based on the amount of retirees’ savings.
There’s also evidence that retirees are doing a poor job of managing retirement risks; many lack a formal plan to generate retirement income from their savings, and as a result, they’re planning to spend down assets at an unsustainable rate. Others are under-spending in retirement for fear of running out of money. Surveys show that employees and retirees want and need help generating retirement income.
When making your retirement income plans, think of your own needs first- this is not a selfish act, but a compassionate one. If you truly care for your heirs and family, you’ll not become a burden to them and will be able to supply your own needs.
Retirement annuities might not be the ONLY answer, but they are a very useful tool in the toolbox. For a portion of assets, they do handily eliminate the risk of outliving your money, and offload that longevity risk onto an insurance carrier. It’s worth considering.