Inflation Shock? Here Are Some Tips For Improving Your Retirement Income
We’ve all been dealing with shocking inflation for the last couple of years. In fact, inflation hasn’t peaked so high since the Great Inflation in the mid 20th Century. The Great Inflation peaked at over 14% in 1980 causing the Federal Reserve to revamp their policies. During the current high inflation, many of us are rethinking our retirement plans and wondering if we’ll outlive our savings.
For Those Still Planning Their Retirement
If you’re still working and saving for retirement, it’s not too late to make some changes to account for higher inflation.Increase How Long Your Savings Will Last
- Delay retirement to shorten the time your savings need to last.
- Increase payments into retirement savings.
- Postpone taking Social Security until age 70.
Income You Can’t Outlive
Extending the time your savings pay out can be built into your retirement plans by investing in guaranteed lifetime income insurance, longevity insurance, or by laddering.Guaranteed lifetime income insurance, also known as annuities, provide regular payments for a lifetime in exchange for a lump sum premium payment. Fixed Index annuities offer interest based on the stock market performance. Variable annuities offer direct investment in the market with deferred taxes. Your investment is locked in to the plan with restricted amounts available for withdrawal. Plan to leave the funds for the purpose. Some plans include the potential for increasing payments. And, some plans have the added ability to be owned jointly and continue to pay for the lifetime of the longest lived.
Longevity Insurance, also known as deferred-income annuities, are designed to preserve a set amount of funds to be available in later years. Some of these plans offer fixed interest set annually, some offer interest based on stock market performance and some offer direct investment for part or all of the investment to participate in the stock market. According the Jason S. Scott writing in the Financial Analysts Journal, “For a typical retiree, allocating 10–15 percent of wealth to a longevity annuity creates spending benefits comparable to an allocation to an immediate annuity of 60 percent or more.” This method of extending savings is more flexible since most of the savings are held in savings or other liquid investments.
“Laddering” can be accomplished using certificates of deposit (CDs), US Treasury bonds (Bonds), or period certain annuities (Annuities). It requires diligence to invest lump sums to mature at regular intervals over the years. Each CD, Bond or Annuity is purchased with a maturation date later than the previous one. This method is more flexible than guaranteed income. With a smaller amount of money locked up at a time, more money is available to invest or spend immediately.
Hedging Against Rising Long Term Care Costs
Long term care costs are rising as baby boomers enter into their later years causing increasing demand for care providers from a shrinking labor pool. Median national cost for a year of long term care was around $60,000 a year for home care and $108,000 per year for a private room in a nursing home in 2021. Paying for care from your own resources can quickly reduce savings and may increase income tax and Medicare premiums and reduce social security payments (for those younger than full retirement age). You can help protect your retirement savings but buying long term care insurance There are a number of ways to do that.- Traditional long term care insurance. The amount of benefits available to pay for care can increase over time and premiums may be low relative to the benefits available. Qualifying can be challenging and premiums increase over time.
- Life insurance with a true long term care rider or with “accelerated death benefits” or “living benefits” to help with terminal, critical or chronic care as well as offer death benefits for your heirs.
- An annuity which focuses on long term care or has accelerated death benefits. These plans may also include income for life.
For Those In Need Of More Retirement Income Now
If you find yourself in a bind with an unexpected expense or a view of the end of your retirement income, you may be able to recoup some funds from the strategies below.Cash From Your Home
- Sell Your Home – Consult your tax advisor regarding income tax, Medicare and social security impacts.
- Use the funds when moving to assisted living or a nursing home.
- Pay cash for a condo or home or rent and use the remaining funds for emergencies or to add to your current income.
- Convert Your Home Equity to Cash
- Taking out a Reverse Mortgage will provide a lump sum or monthly payments as long as you’re living there and keep paying the taxes and insurance.
- Cash-out refinancing or home equity line of credit for emergencies. Subject to fees, interest and minimum payments which can increase over time.
Getting More From Life Insurance Policies
The need for life insurance changes over time. If you have life insurance that you no longer need, you may find one of these methods will bring you some much needed cash.- Check your policy for accelerated death benefits or income potential. (SEE above section on life insurance.)
- If it’s permanent insurance (not term) you may have a cash value you can access tax free.
- Both permanent and term life might be able to be sold through a wholesaler. Generally speaking higher values are available to older people in poor health with active permanent life insurance policies. The only way to know for sure is to try. You choose whether or not to finalize the sale.
Next Steps:
Let’s stress test your retirement plan – set an appointment to get started. Set a time to learn more about making one of these recommendations work for you. We’re here to guide you through the entire process.Want more tips, our latest blog posts, articles, and updates? Join our email list below, or follow us on Facebook!
