August 7, 2020

New Study Sheds Light on Retirement Planning

A new study from JP Morgan sheds some new light regarding retirement planning. One of the most important questions in retirement planning is: how long do I need to plan for? To this end, the study found that for people currently age 65:

  • women have a 86% probability of living to age 75, and men have a 79% probability.
  • women have a 73%  probability of living to age 80, and men have a 63% probability.
  • women have a 58%  probability of living to age 85, and men have a 44% probability.
  • women have a 34%  probability of living to age 90, and men have a 23% probability.
  • women have a 14%  probability of living to age 95, and men have a 7% probability.
  • women have a 3%  probability of living to age 100, and men have a 1% probability.

This shows that people need to plan on being retired for at least 25 years. Over the course of those 25 years, inflation will erode both the buying power of your retirement savings distributions (so you with need to withdraw more to maintain the same standard of living) as well as the buying power of your Social Security benefits as inflation outpaces the cost of living adjustments (assuming no changes to Social Security are made).

The Center for Retirement Research recommends following the IRS’s Required Minimum Distributions (RMD), even if you do not have a tax advantaged retirement account (for which the RMD tables were developed). The Center for Retirement Research likes this approach because:

  1. It’s simple for retirees to follow.
  2. It is designed to increase withdrawals over time as life expectancy decreases.
  3. This approach encourages a balanced portfolio since it is not only focused on retirement income which can lead people to chase dividends.
  4. Withdrawal rates are tied to changes in the stock market since the withdrawal amount is based on the portfolio’s current value, not the value of the portfolio at the time you began drawing down your account.

The good news for people who feel that these strategies are out of reach is that more and more people are learning about life settlements. A life settlement transaction is a powerful tool that allows life insurance policy holders to tap the market value of their life policy, which they can use however they need! In a life settlement, the life insurance policy holder receives a cash offer of an amount less than the death benefit but more than the cash value from a life settlement provider. The new owner then pays all future premium payments on the policy. Life settlements are a regulated transaction, so make sure you are working with a life settlement provider or broker who is licensed in your state.

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