Take the time to make sure your retirement income wlll last until age 100.
There’s a good chance that you—or your spouse or partner—could live to age 100 if you take care of your health and have above-average income and educational attainment. Don’t believe it? You can see for yourself by estimating your life expectancy via a few online life expectancy calculators. But will you be able to pay for your living expenses if you live to age 100?
My wife and I both input our information into several online life expectancy calculators and found that there’s a strong chance that at least one of us could live to 100. That would mean we’d need our retirement income to last another 30 years! Knowing we could live to 100, we both believe that it’s the responsible thing to plan and act as if we need our retirement income to last that long.
It’s sobering to realize that over the course of 30 years, we’ll most likely experience—and need to survive—a handful of stock market crashes, bouts of inflation, and other potential economic disruptions. Given those likely events, let’s see how we could build a portfolio of retirement income that can support a long life.
Working longer can be a part of your live-to-100 retirement plan
If you really plan and act as if you’ll live to age 100, then it doesn’t make sense to retire completely in your 50s or early to mid 60s and live exclusively on your financial resources for 30 to 40 years. Most people simply don’t have enough retirement savings or retirement income to do that unless they’re very wealthy.
That being said, many people reach their 50s or 60s and are either unable to continue working at their current job or are tired of working at the same intensity compared to their younger years. As a result, an important part of your live-to-100 retirement plan is to find paid work that you like, allows you to enjoy life outside of work, and can continue at least until your 70s. Such work might not pay as well as the jobs you held during your earlier years, but you’ll nevertheless still have money coming in from work. One possible goal would be to work part time and earn just enough to cover your living expenses. This lets you delay tapping into your retirement savings and allows your retirement income to grow as much as possible.
Build a portfolio of lifetime retirement income that covers your living expenses
Eventually, however, you’ll reach an age when you’re unwilling or unable to work in any way. As a result, you’ll want to develop a portfolio of retirement income that lasts the rest of your life, no matter how long you live, and is enough to cover your living expenses. In other words, you’ll want to satisfy the common-sense formula for retirement security:
I>E, or income should be greater than expenses.
Most people’s retirement income portfolio consists of Social Security, pensions if you’re lucky enough to have one, and retirement savings. Let’s look at each of these financial resources with an eye to living to 100.
Maximize your lifetime Social Security benefits
For most people, Social Security will be your most valuable source of retirement income, since it’s paid for the rest of your life, no matter how long you live, is increased for inflation, and won’t go down in value if the stock market crashes. For these reasons, it makes sense to let it grow as large as possible, which often means waiting until age 70 to start your benefits. An online Social Security optimizer, such as Open Social Security, can help you determine what you need to do to receive the most income over your lifetime.
The best way to delay starting your Social Security benefits is to earn enough money from working to cover your living expenses while you’re waiting to start your benefits. If that’s not possible, however, then the second-best way is to use a portion of your retirement savings to fund a Social Security bridge strategy, where you withdraw enough from your retirement savings to “replace” the Social Security benefit you’re delaying.
Maximize your lifetime pension benefits
Pension income usually is paid monthly for the rest of your life, no matter how long you live. If you’ve earned a pension income and you act as if you’ll live to age 100, then it makes sense to wait to start these valuable benefits until you reach the “normal retirement age” when there is no longer a reduction for starting benefits early. If you’re offered a lump sum benefit in lieu of the monthly lifetime retirement income, you’ll want to carefully consider this critical decision. It will be very hard to manage that lump sum well enough to make it last until age 100 and receive more income compared to simply accepting the monthly form of lifetime income.
Carefully deploy your retirement savings to generate lifetime retirement income
There are two basic ways to generate lifetime income from your retirement savings:
- Buy a low-cost income annuity, which will pay you a monthly income for the rest of your life, no matter how long you live. Consider it as a “personal pension.”
- Invest your savings and use a careful method for withdrawing from your savings such that it will last until age 100.
For many people, the two choices above don’t constitute an “either/or” decision. It might be best to build a floor of guaranteed lifetime retirement income from the combination of Social Security, pensions, and annuities to cover your “needs”—your basic living expenses. Then invest and withdraw from the remainder of your savings to generate a regular paycheck that can cover your “wants.”
Of course, there are many details that must be determined with each of these steps. My wife and I have spent a lot of time to develop these strategies for ourselves. It makes us feel better that we won’t be poor in our old age and we won’t be a burden to our family. And we’re happy that we will have enough income over the years ahead to work on our bucket list!
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