People imagine retirement as a time to relax at the beach or get in a few extra sets of tennis, but too many retirees instead lie awake in bed, tossing and turning as they worry about how they’ll meet their monthly expenses.
Surveys often show that the No. 1 worry Americans have in retirement is that they will run out of money; that they will be looking at an empty bank account while the bills keep pouring in.
That’s not an unfounded concern.
People retiring today face a very different struggle than their parents did. Retirees a generation back were more confident they could count on Social Security. Many of them also had pensions – sometimes generous pensions – guaranteeing them a lifetime income.
These days, pensions are an endangered species and Social Security is on unsteady ground. That means personal savings are more critical than ever and it’s also why, since there’s a good chance you have no pension, you’ll need to consider creating one for yourself.
One option that allows retirees to give themselves a life-time income stream is annuities. An annuity is a contract between a buyer and an insurance company. You pay the company up front, and in return you receive regular payments that can stretch out over your lifetime.
Think of it as “sleep-well-at-night” insurance. You can stop all that tossing and turning because you know the money won’t dry up.
Of course, each person’s situation is different, and what works great for one person might not be the best answer for another, so blanket advice isn’t always possible. But here are few additional retirement-planning suggestions that apply to nearly everyone and could be considered a different form of “sleep-well-at-night” insurance:
- Don’t procrastinate. Unfortunately, some people put off planning until it’s too late, or nearly too late, to put themselves in a good position to create a lifetime stream of money. I’ve compared it to showing up at a tax accountant’s office on April 15 and asking, “Can you reduce my tax bill?” Not likely. Not at that point. Retirement planning is somewhat like that. Eventually, there’s a point of no return. So now is the time to start learning such things as the best ways to maximize your Social Security and how you can make the most of the retirement savings you’ve been stashing away for years.
- Figure out your estimated retirement costs. How much are you going to spend each month in retirement? People often assume their expenses will go down, but that’s not always the case. As you age, health care issues alone can create added expenses you weren’t counting on. In addition, many people plotting out their retirement don’t take into account two very real factors – taxes and inflation. Taxes aren’t always easy to predict, but there’s a good chance they will rise over the course of your retirement. Inflation is an almost certainty, which means $100 is going to buy you a lot less at the supermarket when you are 87 than it did when you were newly retired at 67.
- Be prepared for a long retirement – perhaps really long. Sometimes financial professionals like to joke that the good news is people are living longer, while the bad news is people are living longer. Retirement could last two decades. Maybe three. Maybe four. Don’t underestimate just how long it is you’ll need to make your money last.
Maybe after you ponder all the variables, you’ll decide to put off retirement a few years. Maybe you’ll choose to work part-time in retirement. Hopefully, you’ll at least have a better handle on how to make your money work for you in the most efficient manner.
That way you can sleep well at night – if not like a baby, at least like a confident and secure retiree.
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