Will our money last through retirement?

By Ike S. Trotter

Today, many of our most recognized celebrities are hitting life’s “milestone” birthday of age 65 and joining the ranks of “senior citizens.” Just to name a few, Vanna White of “Wheel of Fortune” just turned 65. Donny Osmond, practically a toddler when he performed and sang on “The Andy Williams Show,” will turn 65 this month. Add another year and you include Tom Hanks, Bill Gates and Joe Montana, who are turning 66 this year.

At this age, they are now eligible for full retirement age benefits with their Social Security income. And how is it possible that Ron Howard, who played Opie on “The Andy Griffith Show,” is now age 68?

October is National Retirement Security Month, making it the perfect time for financial professionals to review retirement planning strategies for both themselves and their clients. In my experience, I’ve found a few basic keys to ensure that we and our clients don’t outlive our retirement savings.

All this leads to the real crux of retirement planning today, and that is having enough income. However, the most important aspect of retirement planning deals with a key longevity question, which is how long must this income last?

Today, you can surf the web and find thousands of internet platforms offering calculators that can estimate how long you will live. I recently answered questions through two of these programs, the first being through Northwestern Mutual life at their website media.nmfn.com/lifespan.

Through a series of questions, it calculated I could live to age 93.

The second was a website on exercise and longevity called blueprintincome.com/life-expectancy-calculator, which estimated I would live to age 94. While I like what these programs have estimated for me, the larger, unanswerable question from this exercise could be will I have enough money at my retirement to last a lifetime? And when we are looking out for our clients’ interests, it is important that we consider the same question on their behalf.

None of us has the exact answer, but we are seeing trends that potentially illustrate needing retirement income for years and years. One of the most incredible statistics is that for every American worker retiring at age 65 today, there is now a 50/50 chance of their making it to age 90! And with a life span stretching over several decades at retirement age, it is possible they and we would come up short on cash.

So, what can be done? What must happen to generate enough income to support our golden years, which may stretch longer than our childhood? A tough question for sure, but here are four suggestions that may help extend income a bit further in retirement:

» Probably most important is creating a retirement budget. Transitioning from active income to retirement income is not easy. Critical to this is discerning between essential income and discretionary income. Understanding the differences between the two is essential.

» Be careful about retirement withdrawals. Particularly for plans such as individual retirement accounts or employer-sponsored 401(k) programs, this means not withdrawing too high a percentage of income. A withdrawal percentage of 4% or even 3% provides a better chance of your account lasting over a lifetime. Even if your holdings can achieve a 5% or 6% overall yield on assets, it is wise to build a backlog of extra earnings that can accumulate and be available to offset the damaging effects of inflation.

» Consider delaying your retirement income. A good example would be your Social Security. For every year you delay claiming benefits past normal retirement age, your monthly benefit can increase by some 8%. And if you can delay beginning Social Security from age 66 to age 70, your potential monthly income stream can grow by some 32% more.

» Finally, consider annuitizing a portion of your retirement assets into an income stream. In addition to guaranteeing a lifetime income, the potential for a larger payout is enhanced because both principal and interest are being distributed.