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Your Insurance Matters: Three of five retirees will run out of money
Your Insurance Matters
Three of five retirees will run out of money
by Shirley R. Lamdan, CLU, Hagerstown, MD
Three of five retirees will run out of money. How could this happen? Two Ernst & Young reports reveal that a majority of retirees' financial assets will be exhausted if they keep the same lifestyle and spending habits of their working years.
July 2010 data from the Employee Benefit Research Institute predict that almost half of those who are near retirement will run out of money and will be unable to pay their basic expenses or uninsured health care costs.
Ernst & Young's 2008 "Retirement Vulnerability of New Retirees" and the Ernst & Young 2009 "Updated Retirement Vulnerability Analysis" reveal that about three out of five American retirees are likely to outlive their financial resources.
Retirees with Social Security as their only guaranteed lifetime retirement check have a 90 percent chance of exhausting their finances in retirement.
To help prevent this, both Ernst & Young reports advise that retirees will have to reduce their standard of living to help prevent exhausting their resources.
However, retirees who are better prepared in retirement receive guaranteed lifetime income checks IN ADDITION to Social Security.
For example, retirees who receive a pension check from an employer-sponsored plan, in addition to their Social Security check, will be less likely to outlive their assets. If they retain their pre-retirement standard of living, this group has a 31 percent chance of outliving their resources.
And, retirees with lifetime annuity checks, in addition to Social Security, are also less likely to run out of money.
THE PROBLEM. Only half of American workers have employer-sponsored retirement plans. Fewer still are covered by the once-traditional pension programs that offer guaranteed lifetime income payments (defined benefit plans). Instead, employer-sponsored 401k plans (defined contribution plans) tend to require retirees to manage their own accounts.
Even the most careful savers can find it challenging to manage the income distribution from their 401K accounts. That income must provide a steady income stream for the many years, from 20 to 30 years, or more, of retirement.
Retirees could draw down their retirement savings too quickly. This would leave them with inadequate income for the remaining years of their lives. Or, they may spend too slowly. This would deprive them of an appropriate standard of living.
THE SOLUTION. More than just one check for life. In other words: significant and guaranteed lifetime source(s) of income beyond Social Security.
Begin to calculate your basic living expenses. When you come up with some basic figures, you will be ready to explore your options of replacing your work paycheck(s) with a combination of pension or annuity payments and Social Security.
Next, consider the advice of The Employee Benefit Research Institute Study of 2010, the Ernst & Young Retirement Vulnerability Reports of 2008 and 2009, the report of the National Bureau of Economic Research, and a new Government Accountability Office Study of July, 2011: the purchase of lifetime annuities with a portion of retiree savings.
Put your independent insurance professional on the job to provide you with a variety of annuity products and options from a variety of companies.
You might not want to place your annuity funds all at once. You may prefer purchasing annuities now, and others in the future when interest rates may be higher.
Since 1982, Shirley R. Lamdan, CLU of Hagerstown, MD has been serving individuals, corporations, and nonprofits with independent retirement and insurance services. She can be contacted at 301-791-9427 and firstname.lastname@example.org.
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