One way to help guarantee that you will enjoy a good quality of life during retirement is to ensure that you are able to meet any necessary financial obligations with your budget. Let’s look at some of the ways you can keep from outliving your assets.
1. Determine Your Financial Readiness
Before deciding when you will retire, work with a financial planner to determine your financial readiness for retirement. While there are many free calculators available on the internet that promise to provide an assessment of your retirement readiness, these generally don’t include all the pertinent factors to be considered and should be regarded as a very rough indicator.
Consider working with a financial planner who is experienced with retirement planning and can provide you with a comprehensive assessment. A financial planner will also be able to provide you with a realistic road map to your retirement. This road map should include amounts you have already saved, the plans you have put in place and the steps you need to take to help you achieve a secure retirement. (For further reading, check out Dispelling 5 Myths About Financial Planners and Financial Planning: It’s About More Than Money.)
2. Consider Adding Annuities to Your Portfolio
Enjoying an above-average return on your investments is an attractive goal. However, as you get closer to retirement, your risk tolerance will likely decrease, thereby increasing the need for safer investments. Most financial planners recommend diversifying your portfolio so that you can enjoy the various levels of returns, from guaranteed to high risk/reward.
“A diversified portfolio provides a much larger payout during retirement than a 100% cash portfolio when using RMD-based withdrawals,” says Craig L. Israelsen, Ph.D., designer of the 7Twelve Portfolio, in Springville, Utah. “Diversification makes a lot of sense…in portfolios and diets!”
One way of enjoying the best of both worlds is to invest your assets in annuities. Be careful though, as all annuities are not created equal. When choosing one, determine your objective and then choose an annuity that’s the most suitable for you. The following are some general features of annuities:
|General Features||Fixed Annuity||Variable Annuity|
|Guaranteed principal, where you cannot lose the amount you invest regardless of the performance of the underlying investments||√||–|
|Principal and return are not guaranteed||–||√|
|Guaranteed earnings at a fixed rate of interest or fixed amount for a fixed period. Some programs pay interest in addition to the minimum guaranteed amounts||√||–|
|Invested in funds with a particular investment objective, with payments to you determined by the performance of the fund. Fund usually includes a mixture of stock, bonds and money markets||–||√|
|Equity-indexed, where the value is based on the performance of the chosen stock index||√||–|
|Market value adjusted; you are usually permitted to choose the period of investment and the interest rate of return within established limits. You may be allowed to make withdrawals before the end of the investment period||√||–|
|Deferred annuity, which is designed for savings, growth, investing and deferred income. Usually can be purchased with a lump sum amount or multiple deposits. Usually appropriate if goal is planning for retirement and you have a relatively long period before you retire||√||–|
|Immediate annuity, which is designed to pay income immediately after the annuity is purchased. Usually purchased with one lump sum amount (single payment). Usually appropriate if you are near retirement or already retired and you want to turn a lump sum amount into a stream of periodic income amounts, with payments beginning immediately after the annuity is purchased||√||√|
|Fixed or guaranteed period, where you receive payments for a fixed number of years. If you die before the period expires, your beneficiaries will receive payments for the remaining period||√||√|
|Lifetime annuity, with payments continuing for as long as you live, and ceasing upon your death||√||√|
|Joint and survivor annuity, with payments continuing to you for as long as you live,and continuing to your beneficiary – usually your surviving spouse –…|