Wednesday, September 4, 2019

Save yourself from Retirement Poverty! 2


Don’t count on working. The average age for retirement in Canada and the US is under 65. So, plan to leave work early, because many of us will retire before we expect to and before we are ready. Nearly four in ten people retire due to poor health, caring for a family member, or job loss. If we retire due to poor health or becoming a caregiver or a job loss, we will not find it easy to go back to work.

Deal with inflation. Getting good advice is important because inflation can destroy your best-laid plans. Use the rule of 72 when thinking about inflation. The rule works this way: If inflation is 6% (the average) then if you divide 72 by 6 you get 12. That means in 12 years your income will buy 50% less than today.  Inflation is a fact of life that we deal with through pay increases when we were working. After retirement, it is up to us to manage our own assets or secure guaranteed income. However, few of us have the skills to manage income to keep up with inflation.

Face facts about long-term care.  The research I have looked at tells me that many of us will live long and happy life’s but for many of us, we will need on average 2 to 4 years of long-term care. This is a fact of life that many of us underestimate. Relatively few of us either own long-term care insurance or can afford to self-insure a long-term care situation.

Provide for a surviving spouse. If you are in a relationship, the reality is that one of you will live longer than the other. For mixed-sex relationships, women will live longer than men. For same-sex partners, health and family history will determine who lives longer. The fact is we fail to plan for the eventual death of one spouse before the other. When one person dies, there is a drop in income for the survivor. Provide for your spouse or they will end up living in poverty.

Make your money last for a lifetime. There are many ways to make the money you have saved last your lifetime. We need to get advice as to what works for us, and we need to educate ourselves about the choices, we have to make. We often pass up opportunities to get a lifetime pension or annuity, because we fail to recognize the difficulty of making money last for a lifetime on our own. People say guaranteed lifetime income is important, but in practice, we usually choose a lump sum.

This checklist is drawn from the work of the Committee of Post-Retirement Needs and Risk of the Society of Actuaries


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