Wells Fargo just completed its fifth annual Middle-Class Retirement study, which revealed that 72 percent of middle-class Americans say they should have started saving earlier for retirement. Sadly, half of those in their 50s say they will need to work to age 80 because they will not have enough retirement savings.
There is a silver lining to these shocking numbers. The survey found that those with a written retirement plan are saving two and a half times more than those who do not have a written plan. But while it is crystal clear that having a written strategy for your retirement makes a sizable difference, unfortunately only 28 percent report that they have a written plan.
Even more disappointing, the survey noted that 22 percent of the middle class say they would rather die early than not have enough money to live comfortably in retirement. This underscores one of the biggest fears of baby boomers and retirees — longevity.
National vital statistics show that 100 years ago the average life expectancy was approximately 54 years. In 1935 when Social Security was enacted, the average life expectancy was about 62 years. Today with advances in modern medicine, nutrition, and other factors, someone turning age 65 can expect to live to age 85, and that’s just an average.
Moreover, according to recent LIMRA statistics, there is a 50 percent chance that a couple aged 65 will have one member of the couple live to age 90 or beyond!
It’s great news that Americans are living longer, and given the increasing life expectancies, many of us will live into our 80s or 90s. The challenge, as the Wells Fargo study indicates, is that many Americans haven’t properly prepared for retirement.
So how do I get started? What can I do to avoid outliving my money or working until I die?
The first step is to draw a road map that allows you to have confidence in your retirement plan. Remember, if anything is learned from the Wells Fargo survey, it should be that those with a written plan saved two and a half times as much as those who didn’t. Simply having a plan will get you headed in the right direction.
In my 28-year career, I’ve had people tell me: “My retirement strategy covers me through my life expectancy.” My answer is always the same: “That’s great, you have a 50 percent chance of being right.” Life expectancy is the age at which 50 percent of the people in a group have passed away, but that also means that 50 percent are still alive! Plan beyond life expectancy — remember, 50 percent of the couples age 65 will have one member of the couple live to at least age 90.
There is another risk that is not as common but one that needs to be brought up. It’s the risk of missed opportunities. Many who don’t feel comfortable with their finances find that they can’t enjoy their money for fear they may run out; as a result, these individuals are too conservative and are never able to truly enjoy the full benefit of their retirement nest egg. The fear of longevity can cause some to discover that they were too conservative during their retirement years and they could have lived a better quality of life had they known how long their money would last.
When examining various retirement solutions, consider the benefits of an annuity that carries with it a guaranteed lifetime income feature. These contracts can allow you to pass the risk of longevity to an insurance company, and allow you to have the comfort that comes with predictable income streams in retirement.
The contracts and rider(s) can be structured in such a way that these contracts pay you a guaranteed lifetime of income, no matter how long you live. Yes, the payments are guaranteed, and you get it in writing! The guarantees are backed by the financial strength and claims-paying ability of the insurance company issuing the contract. So you’ll want to be sure to team up with a carrier that is financially sound.
There are several independent agencies that rate the financial strength of insurance companies, including Standard & Poor’s, A. M. Best, and Moody’s, to name a few. Each has its own way of analyzing and rating the financial strength of insurance companies, and I recommend that you review more than one insurance rating agency’s grades to get an overall picture of a company’s financial health.
Annuities are long-term insurance contracts designed for retirement. As a result, there may be fees or penalties for early withdrawals, including surrender charges, and if taken prior to age 59 1/2, withdrawals may be subject to an additional 10 percent federal tax.
Remember, 72 percent of middle-class Americans said they should have started saving earlier for retirement. And when it comes to a happy retirement, the survey reveals it’s important to begin with a written plan.
But don’t stop there. With today’s medical advances, it may ultimately be more important to finish with a plan for income no matter how long you live. You should consider making an annuity contract with a guaranteed lifetime income feature a key part of your retirement strategy. This can provide you with the reassurance that comes with a guaranteed income stream that you cannot outlive.
Joe Stark is the CEO of Crown Atlantic Insurance, LLC in Boca Raton, Fla. Stark is an insurance industry veteran with more than 25 years of experience. For more of his reports, Go Here Now.
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