People planning to retire often tell me their greatest fear is running out of money after they stop working. They have a valid concern, but the risk is not really about living too long. Instead, the issue that could bring calamity is the risk of failing to consistently follow a reasonable retirement plan.
Retirement planning must consider a couple of main points: You might live a long and healthy life, in which case you need money to continue so you can pay your normal bills. That’s called “longevity risk.” Or you might incur large and perhaps unreimbursed medical and caregiver expenses.
Keep on track
You can prepare for both, but once you create your plan, the tough part for many is to stay the course. That’s true particularly when investment returns are volatile and negative. Studies show that investors lose 1% or more on their returns when they are not in the market. This could mean five or more years in lost income.
However, unlike the risk of market returns, which no amount of diversification can fully allay, you can control the “stay the course” risk. All it takes is a little adjustment in your retirement planning, based on a simple premise: Reduce the amount of your income that is subject to the market – or what we call “income volatility.”
With preparation, you can reduce your income volatility during retirement by 50% or more. And, with the proper investment, you can get a 20% increase in income that lasts a lifetime.
You can achieve these results with an Income Allocation plan.