Planning for Income Post Retirement
If you are around sixty years old and are one of the few who have enough saved to retire comfortably you are most likely planning your celebrations as we speak. But whether or not you are a part of this group you should still be considering your options carefully. There are many paths to investment success and your financial advisor can play a crucial role in showing you the way. In this article we will look at some of these options and how they can contribute to better retirement savings while helping to maintain your standard of living in retirement.
While your working situation and income have a direct impact on your retirement options we can assume that most people have the same goals for retirement. These are to benefit from an income that can sustain a reasonable standard of living for the remainder of their lifespan. So what are some of your options which can help you reach your goal?
Guaranteed Life Annuities
As you might expect from the name, this annuity at its core will give you guaranteed earnings for the rest of your life which helps to combat the problem of outliving your savings. How much you actually get is determined partly by how old you are, current interest rates and unit trust prices. Essentially the longer you are expected to live, the less you are likely to receive.
To offset the risk of paying your income if you live for an extended time, legal ownership of your capital is given to the insurer and they have sole claim to this when you die. The insurer cannot ask you to pay in more money if you live longer, and by the same token your family cannot ask for more money should you die sooner than expected.
There are various kinds of guaranteed life annuities. It’s important that you look at all the available options and understand the effect of inflation before you make any long term decisions. This will help to ensure that you maintain your standard of living into retirement.
A living or linked annuity does not guarantee income and is dependent on how the underlying products, like unit trusts, perform. This option gives a certain amount of flexibility which is offset by increased risk. It is recommended that these types of investments are taken only under advisement from an independent financial advisor, as there are many factors to be understood which could influence your investment. This will also help to align your expectations with the return.
When it comes to living annuities careful asset allocation is key as it will influence how long the investment will last and your standard of living. It’s important to look at how much risk you are realistically able to take on and how much growth with be required to sustain the investment.
Of course there are many factors that cannot be accounted for and which cannot be known, such as what the actual returns of your investment will be, how long the income will need to last and what the rate of inflation will be in reality. The best course of action here is to make reasonable assumptions and adjust your spending to accommodate for any unforeseen changes.
In conclusion, with more and more people spending as much time in retirement as they do actually working, it’s time we start thinking of retirement as the next stage of financial planning, and not the end of it. Careful consideration at retirement age as to the next phase of investment can really improve returns and increase the longevity of income after retirement.
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