If you make it to age 80, life expectancy increases to 89.7 (women) and 88 (men)
. Make it to 90 and statistics suggest you have another 4-5 years of longevity. A bit longer if you're married.
A 4% safe withdrawal rate
, once considered standard in the financial planning community, has recently been called into question as too risky.
Similar surveys have yielded similar results.
Conclusion? Statistically, you can expect to enjoy a long retirement and doing so with guaranteed income flowing will make you happier.
A Solution - Do It Yourself
Failure to recognize the impact of sequence of returns risk
, among the many other very real risks retirees face, can be especially detrimental to one's retirement health in a declining market.
One solution to increasing your retirement happiness and security while reducing the risks associated with it lies in building your own "pension" using fixed deferred and immediate annuities
Although routinely eschewed by financial advisors who specialize in assets under management, annuities offer something no other financial planning product can.
"A fixed annuity is the only product that allows individuals
to accumulate retirement savings, protect those savings from
declining markets and receive guaranteed income for life."
National Association of Fixed Annuities
Consider this recent quote for a 62-year-old single male who is considering dedicating $100,000 of his $500,000 401(k) toward creating his own pension-like future income plan.
In exchange for $100,000, he buys:
An immediate 10% credit toward his income account ($10,000);
His income account then grows at a guaranteed rate of 7.0% per year; and,
At age 73 when he plans to initiate his lifetime income, he will receive
5.05% ($10,927) of his accumulated value ($216,386) for life.
In summary, he receives close to the historical S&P 500 market gain each year (minus the risk) and can expect a systematic withdrawal rate of over 5.0% (25% better than the generally accepted safe withdrawal rate referenced above) for life.
Any remaining death benefit in this example will be based on investment elections and experience but from a purely guaranteed income perspective, this is tough to beat.
Worth mentioning: By dedicating a portion (20%) of his retirement savings to this safe withdrawal option, two important objectives are accomplished:
1) He can absorb a little more risk with the remainder of his retirement portfolio; and,
2) The impact of any catastrophic losses is minimized.