Whether you look at New Year’s Day as a fresh start or as just another day, it’s as good a time as any to look at where you are and where you’re headed. One place you’re probably headed, at some point, is retirement!
Ideally, you will have significant retirement assets when you’re ready to retire. But don’t be misled by a big lump sum. That money has to last throughout your retirement, and that could be many years.
Not Your Grandparents’ Retirement
You may be retired considerably longer than your grandparents were. The average life expectancy for a newborn baby in the U.S. at the beginning of the 20th century was 47.3 years.1 The projected average life expectancy for babies born in 2014 is 78.8 years,2 an increase of more than 30 years.
Good News and Not-so-Good News
A long retirement is great . . . as long as the money doesn’t run out. Even a generous lump sum shrinks when you divide it up into annual amounts. For example, without adjusting for any investment earnings or income taxes payable, a lump sum of $400,000 equals just $20,000 a year for 20 years. This very rough calculation highlights how important it is to look at your invested assets in terms of the annual amount you could potentially withdraw from them.
Help From Other Places
You will probably receive some retirement income from Social Security. But remember that Social Security was never designed to cover the bulk of your retirement living expenses. It’s best to view it as supplemental income. And benefit formulas and age requirements could change in the future.
Pensions used to be a second major source of retirement income. However, things have changed and pension plans are becoming fairly rare. Instead, the benefits that many of today’s retirement plans provide are determined by the amount you have in your account — that big lump sum.
You Can Do It
How should you tackle building your retirement assets? Estimate how much income you’re going to need and set a realistic goal. Choose a mix of investments that can help you reach your goal, considering the amount of time you have to invest and your risk tolerance. And just keep working at it.
If you have any questions about supplemental income or taking a lump sum, please contact a Lumin Financial advisor today.
Disclosure: Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific investment, or investment strategy. Investments involve risk and are not guaranteed. Information has been gathered from sources believed to be reliable, but cannot be represented as accurate or complete. Before investing, you should consult your investment, tax, or legal advisor.
1 Health, United States, 2014, National Center for Health Statistics
2 Centers for Disease Control and Prevention, NCHS Data Brief No. 229, December 2015