According to the United Nations, across
the globe, people older than 65 now outnumber children under five for the first
time in history. In 1960, the average woman gave birth to five children in her
lifetime; by 2017, that ratio had dropped to 2.4 children per woman. Meanwhile,
our life expectancy has increased around the world. In 1960, the average
lifespan was just over 52 years of age; in 2017 the life expectancy was 72.1
Today, more than 60 percent of
married households with children have two income earners.2 Yet many
still struggle to make ends meet. That makes it difficult to save for both the
exponentially rising cost of college and retirement. With fewer children in
subsequent generations to contribute to the economy and bolster Social Security
and Medicare programs, there may be fewer resources available to support the
number of older adults in the future.3
It’s worth remembering that 2019 began with the longest U.S.
government shutdown in history.4 On top of that challenging start to
the year, some economists and media pundits have been suggesting we may be
headed for a recession in the future.5 If
you’d like to discuss your specific situation, and the potential role of
insurance products in your retirement income strategy, please contact us.
One strategy for retirement income
planning during uncertain times is to create multiple income streams. For
example, you could purchase an annuity contract for an insurer-guaranteed
stream of lifetime income. In one recent report, several Brookings Institution fellows
noted, “For many people, acquiring an appropriately consumer protective and
reasonably priced income annuity with at least a portion of their savings will
still be the best choice for retirement income, and for many others it will
play a key role in a broader post-retirement financial strategy.”6
One reason an annuity can help
address uncertainty is because none of us knows how long we are going to live. Therefore,
it’s difficult to know how much money to save or how much you can afford to
spend each year in retirement. An annuity can help address these financial
uncertainties because it offers an option for income for life — as well as the
life of your spouse. It’s important to remember that annuities are insurance
contracts designed for retirement or other long-term needs. They provide
guarantees of principal and credited interest, subject to surrender charges.
As for how much income you’ll need
in retirement, be aware that it will likely change as you get older. According
to recent research from the National Bureau of Economic Research, people age 70
to 75 spend 10.17% of their household income on health care; after age 80, that
share rises to 15.25%. Money spent on domestic services increases from 1.28% to
5.22% during those same time periods.7
prepared by Kara Stefan Communications.
1 Fernando Duarte. BBC. April 8, 2019. “Why
the world now has more grandparents than grandchildren.” https://www.bbc.com/worklife/article/20190405-why-the-world-now-has-more-grandparents-than-grandchildren.
Accessed Oct. 18, 2019.
2 U.S. Bureau of Labor Statistics. April 27, 2017. “Employment
in families with children in 2016.” https://www.bls.gov/opub/ted/2017/mobile/employment-in-families-with-children-in-2016.htm. Accessed Oct. 18, 2019.
3 Kathleen Romig, Matt Broaddus and Aviva Aron-Dine.
Center on Budget and Policy Priorities. April 22, 2019. “Financial Challenges
Facing Social Security and Medicare Largely Unchanged From Last Year, Except
for Improvement in Disability Insurance.” https://www.cbpp.org/research/social-security/financial-challenges-facing-social-security-and-medicare-largely-unchanged. Accessed Oct. 31, 2019.
4 Tobias Salinger. Financial Planning Magazine. Jan. 18,
2019. “How wealth management is stepping up to help during the shutdown.” https://www.financial-planning.com/news/financial-advisors-help-clients-through-government-shutdown. Accessed Oct. 18, 2019.
5 Reade Pickert, Yue Qiu and Alexander McIntyre.
Bloomberg. Nov. 6, 2019. “U.S. Recession Chances Inch Down to 26% Within Next
12 Months.” https://www.bloomberg.com/graphics/us-economic-recession-tracker/. Accessed Nov. 7, 2019.
John, William Gale, J. Mark Iwry and Aaron Krupkin. Brookings Institution. July
2019. “From saving to spending: A proposal to convert retirement account
balances into automatic and flexible income.” https://www.brookings.edu/wp-content/uploads/2019/07/ES_201907_JohnGaleIwryKrupkin.pdf. Accessed Oct. 18, 2019.
7 Retirement Income Journal. Oct. 18, 2019. “Differences
in Expenditures between Young and Old Adults.” https://retirementincomejournal.com/article/differences-in-expenditures-between-young-and-old-adults/. Accessed Oct. 18, 2019.
Guarantees and protections provided by annuities are backed
by the financial strength and claims-paying ability of the issuing insurer.
We are an independent firm helping individuals create retirement
strategies using a variety of insurance products to custom suit their needs and
objectives. This material is intended to provide general information to help
you understand basic retirement income strategies and should not be construed
as financial advice.
The information contained in this material is believed to be reliable,
but accuracy and completeness cannot be guaranteed; it is not intended to be
used as the sole basis for financial decisions. If you are unable to access any
of the news articles and sources through the links provided in this text,
please contact us to request a copy of the desired reference.