Retirement Game Planning article

Ol’ Red posted this at Woody’s hunting forum last month……..

 

Periodic market downturns may result in significant investment losses, particularly within retirement accounts. If you are faced with this situation, you may have to reconsider when, or even if, you can retire.

 

The effects of a decline

Historically, the stock market has had its ups and downs. How any substantial market change impacts your retirement outlook may depend on how close you are to retirement. If you plan on working and contributing to your retirement savings for many more years, you may have time to recoup losses to your accounts due to poor investment performance. But if you’re closing in on retirement or you’re already there, a dip in your savings may affect how much you can safely withdraw and how long your savings can last.

To demonstrate, assume you and your spouse have $1 million in retirement savings, expect an annual average rate of return of 7%, and estimate that you presently need $100,000 annual retirement income for both of you to live comfortably, of which $30,000 will come from Social Security. Presuming withdrawals increase by 3% each year to offset the effects of inflation, your savings will last about 22 years.

However, a decrease of 14% in the value of your savings in one year shortens the duration of your savings by over 4 years.

What are your options?

If you’re fortunate, even a significant decrease in savings may not impact your retirement income dramatically. You may have other sources of fixed income such as company-sponsored pensions, so you won’t need to rely on your savings to provide much of your income. Or you may be able to offset the effect of diminished savings by spending less — forgoing that planned cruise, putting off buying that new car, or making smaller gifts to children and grandchildren, for example. But if you rely on your savings for most of your retirement income, considerable investment losses of the magnitude recently experienced can require major lifestyle changes. Here are a few ideas to help you cope with the erosion of your retirement savings.

Continue working

You may have to delay the retirement party a little longer. Postponing retirement lets you continue to add to your retirement savings, which can offset losses caused by poor investment performance. Also, working allows you to delay withdrawing from your savings. That could allow more time for your retirement accounts to recover from investment-related losses.

Delay taking Social Security

Social Security may be the only source of fixed income you’ll have in retirement. If you delay applying for benefits until your full retirement age, you can get as much as 30% more in monthly payments compared to taking benefits early. And, for each year you defer benefits past your full retirement age (between 65 and 67, depending on when you were born) to age 70, your benefit is increased by 8%. That could mean an additional $500 or more in your benefit check each month–and that doesn’t include annual cost of living increases.

Consider fixed income investments

Investments such as single premium immediate annuities (SPIAs) provide an income for the rest of your life, or for the combined lives of you and your spouse. However, while the income is dependable (subject to the claims-paying ability of the annuity issuer), you generally don’t have access to the money you paid for the SPIA and you may not be able to change the amount of income payments or their duration once you’ve started.

Red