The good news is that people are living longer. The bad news is that many risk outliving their savings, hence we have a “Retirement Crisis.” According to Investing in (and for) Our Future published by the World Economic Forum, the average retiree in the US will outlive their savings in less than 10 years, and it’s worse in other countries. Much of this dilemma is caused by the fact that people are not saving enough. A quick rule of thumb is that you’ll need to save 15 times your expected spending in retirement, so for example if you plan to spend $100,000 per year, net of Social Security, you’ll need at least $1,5 million in savings. Other planning models are even more conservative recommending a 25:1 ratio or $2.5 million.
Investments might help, but it’s important to start with a budget – a spending plan – that has a reasonable chance of lasting a lifetime. You may be one of the lucky ones where your savings will easily last your lifetime, in which case you have more options.
Choices for those who have saved enough
- Buy an annuity or a guaranteed minimum withdrawal plan (GMWP)
- “Ladder” a bond portfolio to match future spending. Sometimes called “Pockets of Money”
- Manage a portfolio through time
- The most popular approach is all of the above,
But you might not be rich enough to have all of these choices. Most aren’t. In particular, you might not have enough money to buy an annuity that will pay your bills. Your choice is pretty much limited to managing your assets through time. This has recently become a big concern among retirement professionals, leading to extensive research.
The most recent studies recommend that you protect your assets early in retirement because your savings are their highest and you probably don’t want to go back into the workforce – part time or full time. They further recommend that over time you gradually increase your investments in riskier investments like stocks and real estate to help extend the life of your investments. These recommendations are in sharp contrast to the old rule of investing 100 minus your age in common stocks.
We can help you make these important decisions, and manage them.