How Long Will My Money Last?

with

Money Matters Granger Hughes

Driven by a passion to educate, inform and prepare future retirees, Mr. Hughes works with his father to help provide educational opportunities for clients as well as others in the community. He feels a responsibility to help inform those who may otherwise not be aware of strategies, changes, and opportunities available to them when it comes to their financial well-being.

This is a tough question many of us will ask at some point in our lives as we face many obstacles when planning for things like long-term care, taxes, potential market downturns, and even longevity risk.

Men at age 65 today can expect to live until age 84 on average, and women on average, until age 87. About one of every four 65-year-olds today will live past age 90, and one of ten past 95.1

This poses a problem our parents or grandparents didn’t face—it’s a good problem, but a problem nonetheless. Let’s address strategies to combat these realities and work toward making your retirement income last 20 to 30 years!

Long-term care (LTC)

The average annual cost of LTC is $108,405.2 Someone turning 65 today has a 70% chance of needing some type of LTC.3 This means LTC is worth accounting for in our retirement plans. Let’s look at a few ways to do this.

Indexed universal life policy

This allows you to access the death benefit in the event you need LTC and are unable to perform two of the six activities of daily living (ADLs), like feeding, bathing, toileting, etc., and aren’t tied to certain care facilities. This money can also be used to build a handicap accessible home if you’d rather — it’s your choice.

Traditional LTC policy

This is a “use it or lose it” product with the potential of wasting money on something you may never need. A lot of these policies also restrict which care facilities you can use, which might be problematic for some.

LTC-focused financial vehicles

This would be utilizing an annuity with an LTC rider. This is a good option for someone who doesn’t want the “use it or lose it” strategy.

The key here is you aren’t qualifying from a health standpoint; however, if you tried to purchase an annuity and couldn’t perform two of the six aforementioned ADLs before you purchased it, the LTC rider wouldn’t be an option.

For example, let’s say you invested $300,000 that generated a lifetime income check of $2,000 a month. In the event you couldn’t perform two of those six ADLs, your check would double to $4,000 a month for up to five years.

Taxes

We’ve been hardwired to reduce taxable income by loading our 401(k)s and other tax-deferred accounts, forgetting about our silent partner: the IRS. We must realize the risk of future tax hikes we may encounter with deferred funds due to outstanding and ever-increasing national debt. Here are some brief solutions.

Roth Conversion

You can convert money in a deferred account to pay the taxes now rather than later. There are no income limits to do this, but remember, you have to pay these taxes eventually!

Roth IRA

This takes a while to build up at $7,000 a year for those over 50 and comes with income limitations, which could be difficult for highincome earners.

Life Insurance Retirement Plan

This can be indexed and there are no contribution or income limits. Also, when you need the money, it can be withdrawn tax-free, if done correctly.

Market downturn

If you’ve been contributing to your retirement income for any amount of time, you know market downturn is always a risk. To better create a retirement income plan, it’s important to assess your risk tolerance by having your portfolio tested to discover your statistical risk versus reward. If you haven’t tested your portfolio, now is the time to do it. Many of us could be positioning ourselves to experience another 2008 and don’t even know it.

These are three key components to help ensure that we don’t run out of money. I urge you to take all into consideration when developing your retirement plan. Working alongside an experienced financial professional can help you explore your options and develop a plan that works for your retirement needs.

Remember: It’s not what we make, it’s what we keep that counts!