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
It’s tough enough to plan for retirement during a robust economy, but to forge
ahead during uncertain times can be stressful. Do you reduce retirement plan contributions
to bolster an emergency savings fund? Do you reposition assets in your
investment portfolio? We believe these questions are best addressed in
consultation with an experienced financial advisor. If you’d like to discuss
your specific situation, please contact us.
One strategy for retirement
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//www/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 and investment products to
custom suit their needs and objectives. This material is intended to provide
general information to help you understand basic financial planning strategies
and should not be construed as financial or investment advice. All investments
are subject to risk including the potential loss of principal. No investment
strategy can guarantee a profit or protect against loss in periods of declining
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