By February 6, 2012 Read More →

Retirement Realities Checklist

Retirement is not a static point in time. It is a potentially decades‐long period during which many factors can have a significant impact on your savings and income. To help prepare you to weather these situations, review the Insured Retirement Institute’s Retirement Realities Checklist with your financial professional, who can structure a long‐term plan to meet your needs.

Determine your…Sources of Guaranteed Income
Social Security and traditional pensions were long‐considered the backbone of a retirement income plan, as both provide a guaranteed lifetime income. Yet, the roles of these two sources are diminishing over time. IRI data shows that less than 40% of Boomers currently younger than age 60 expect Social Security to comprise a major source of their retirement income. Additionally, the number of defined benefit plans in the marketplace dropped 66% between 1985 and 2010. Guaranteed income can help cover your everyday, essential expenses during retirement, addressing lifestyle risk. (Source: 2011 IRI Fact Book, pg. 98)
Remember: Guarantees are based on the claims paying ability of the issuer.

Determine your…Sources of Non-Guaranteed Income
This includes stocks, mutual funds, bonds, commodities, inheritances, payments from company savings plans such as a 401(k) plan. Interest, dividends, and other gains help grow your overall investment portfolio, yet offer no guarantees on principal or earnings. Knowing the sources of non‐guaranteed retirement income you can expect can help your advisor construct a plan for you that also offers principal and income protection to help preserve some of these gains. Note that non‐guaranteed income is susceptible to sequence of returns risk—the risk of running out of money due to low performance in the early years of withdrawals—and asset allocation risk—the risk of investing too conservatively or aggressively to sustain your portfolio for the long‐term.(Sources: GAO, Social Security Administration)

Prepare for…Social Security
Determining when to begin taking Social Security benefits is not to be taken lightly. Research from the Government Accountability Office shows that, between 1997 and 2005, 43% of individuals eligible to start benefits within a month of turning age 62 did so. It is important to keep in mind that if you elect to commence your Social Security retirement benefits at age 62, your benefit payment amounts will be reduced from 25%30%, severely curtailing one source of lifetime income.

Prepare for…Longevity Risk
None of us knows how many years we will live, therefore running the risk that our savings may be insufficient to last throughout our retirement years. In general, if both you and your spouse are now age 65, there is a 50% chance that one of you will live to age 92, and a 25% chance that one of you will live to age 97. Many investments you may own do not assure that funds will be available for as long as needed. Ask your financial advisor about supplementing your retirement investment portfolio with a guaranteed income product. (Source: Prudential Financial)

Prepare for…Market Uncertainties
The Great Recession had a significant impact on both everyday living expenses and retirement savings. Nearly one-half of Baby Boomers found it more difficult to pay for essential items, such as food, gas, and medication, and one-quarter had difficulty paying their housing expenses. And, 20% made premature withdrawals from their retirement savings accounts, cutting into their nest eggs. Although no one can say if and when a market downturn of this magnitude will occur again, the ups and downs inherent in the financial markets must be considered when saving and living in retirement. Learn your risk tolerance so that you and your advisor can select the investments most appropriate for you, as some financial products are more susceptible to market swings than others.

Prepare for…Inflation
The effects of inflation can easily erode your spending ability over time. According to the Bureau of Labor Statistics, the inflation-adjusted equivalent of $100 in 1991 is $166 in 2011. Although an annualized increase of 3% does not seem like much, it can add up considerably over a retirement period that lasts several decades, requiring a greater source of cash flow just to meet basic expenses. (Source: Bureau of Labor Statistics)

Prepare for…Tax Risk
It used to be conventional wisdom that tax rates would decrease upon retirement due to a reduction in personal income—yet, that is no longer the case. The risk of rising tax rates must be considered when building a retirement strategy, as it can set back a long‐term savings and income plan if left unchecked. Additionally, the risk of social programs, such as Social Security, being negatively impacted in a deficit situation makes sound planning of even greater importance.

Prepare for…Health Care Costs
As publicized over the past several years, healthcare costs continue to grow. While Medicare provides medical insurance to most Americans over age 65, it does not provide complete coverage. Out-of-pocket medical expenses for those covered by Medicare are expected to exceed $4,300 per person and $8,600 per couple per year—and these costs are expected to rise. (Source: IRI Fact Book, pgs. 9, 11)

Prepare for…Long-Term Care Costs
Statistics show that two-thirds of individuals over age 65 will need long-term care services at some point in their lives. Costs for home health care are generally not covered by Medicare, and nursing home costs are generally covered by the government after an individual spends down his assets. Therefore, preparation for these contingencies is key. Long‐term care insurance is one way of covering these costs, although premiums and benefits vary widely. Consult your financial advisor for your long‐term care funding options. (Source: IRI Fact Book)

Prepare for…Leaving an Inheritance
Leaving a legacy is highly important to today’s Boomers. IRI has found that 62% of Boomers believe that it very important or somewhat important to them to leave an inheritance to their loved ones. The simultaneous planning for their own security, as well as for those to whom they wish to leave a bequest, requires a carefully constructed strategy that is monitored regularly. Advisors who provide estate planning services can help guide you through this process.

To download a copy of this tip sheet, click here.

This document was reviewed by the Financial Industry Regulatory Authority (FINRA) and was found to be consistent with applicable standards.

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