Smart Planning for a Long Retirement

Published July 24, 2017
Higher life expectancies mean longer retirements. It’s important to consider these tools and strategies to ensure that you don’t outlive your retirement savings.
  • Longevity risk is the risk that you live longer than expected
  • Contributing to your Personal Pension or purchasing an income annuity ensures that you’ll have guaranteed lifetime income
  • You can use Blueprint Income’s Retirement Spending Calculator to project your spending in retirement and determine any spending gaps you may have

You may have heard the term ‘longevity risk’ before — it’s the risk that you live longer than expected, perhaps longer than you planned for financially. As average human life expectancy has climbed higher and higher, it’s becoming increasingly important for people to take action when it comes to long-term financial planning. While no one knows how much money you exactly need to save for retirement, you can use Blueprint Income’s Retirement Spending Calculator to get a sense of how much you should save and project any potential spending gaps you may have. We’ve outlined a few tools below for smart retirement planning and to help ensure you never run out of money during retirement..

Smart Retirement Planning Tip #1: Wait as long as possible to start collecting your Social Security benefits

Social Security provides a lifelong stream of income, but unfortunately, in most cases, the benefits alone aren’t enough to sustain a long and comfortable retirement. Nevertheless, Social Security is an important source of income in retirement. In short, you pay into Social Security during your working years, then once you reach age 62 you can start collecting benefits. The key is, however, to try to wait until full retirement age (66 or 67 depending on when you were born) to begin taking out benefits. Otherwise, your benefits will be reduced for the rest of your life. Bonus points if you wait until age 70 to withdraw benefits, as you’ll receive an 8% increase to your Social Security income for each year you delay claiming beyond full retirement age.

Smart Retirement Planning Tip #2: Purchase an income annuity

Income annuities are another way to guarantee a lifetime stream of income during your retirement. You pay a lump sum upfront to purchase your annuity from an insurance company, then the insurance company sends you a series of payments for the rest of you life.

Income annuities come in two forms: immediate or longevity. With immediate annuities you begin receiving payments immediately after purchase, whereas with longevity annuities, which is similar to the Personal Pension, you can choose to begin receiving payments at a date much later on.

A Qualified Longevity Annuity Contract (QLAC) is a type of longevity annuity that comes with extra tax-deferral benefits. You can transfer the lesser of $125,000 or 25% of your qualified retirement account to a QLAC, which will then generate a future lifetime income stream starting between ages 70 ½ and 85. During the period in which income is deferred, the money used to purchase the QLAC is excluded from the required minimum distribution (RMD) calculation, a required annual withdrawal retirees must take from retirement accounts once they turn 70 ½ years old.

These annuities provide a financial backstop that allows you to spend your retirement savings without fear of outliving your money. They also allow you to pool longevity risk, something other financial instruments, such as bonds, do not. One thing to keep in mind: income annuities have no cash value. Therefore they are not a liquid asset, meaning you can’t access the money if you need it in an emergency (other than in some very limited instances).

Smart Retirement Planning Tip #3: Contribute to your Personal Pension to guarantee a lifetime stream of income

Your Personal Pension is backed by insurance companies which guarantee that for every dollar you contribute, you will receive a certain amount of income every month starting when you retire. Unlike an income annuity, the Personal Pension allows you to contribute incrementally, in smaller amounts and at a younger age, similar to the way you’d put aside money in your savings account or 401(k).

Smart Retirement Planning Tip #4: Consider additional sources of income from real estate

Real estate property can be a great source of income to supplement your retirement savings. Let’s say you own a vacation house in addition to your home. You could rent the second home out to a tenant, establishing a source of monthly income. However, needless to say there are a number of implications of home ownership and many drawbacks to playing the role of a landlord. These are important considerations to make when considering a second home as a source of retirement income.

Smart Retirement Planning Tip #5: Apply the 4% Rule

The 4% Rule was born in the ’90s when financial planner William P. Bengen concluded that someone who started withdrawals at any time between 1926 and 1976 could make the portfolio last for at least 30 years by taking an initial 4% withdrawal and adjusting it for inflation each year. A simple rule if you’re looking to live off your own investments. However, over time, particularly after the market collapse in 2001, and again in 2008, researchers fear that 4% may be too generous a rule. Instead, people are opting for dynamic withdrawal strategies that evolve alongside the market.

Smart Retirement Planning Tip #6: Invest in Managed Payout Funds

Managed payout funds are a kind of mutual fund that can provide a steady monthly income that keeps up with inflation. The allocation of payments may change over time to avoid eating away at the principal. This, however, brings us to a downside of managed payout funds: they don’t provide a guaranteed lifetime stream of income. They can also expose investors to downside risk due to high allocations toward equities. Nevertheless, this is another tool for generating retirement income.

Smart Retirement Planning Tip #7: Consider a reverse mortgage

Reverse mortgages, despite some heat in the media, can provide retirees with additional retirement income, when used correctly. They allow homeowners over age 62 to use their home equity as a tax-free source of funds. Generally, the older you are, the more value you can generate from your home, and the lower the interest rate, the more money you can borrow. Though, keep in mind, there are limits to withdrawals in the first year. However, reverse mortgages are not without a fair share of fees and rules, one being a strict deadline for pay off once the last surviving borrower passes away or moves out of the home.

How Can I Start a Personal Pension?

A Personal Pension is a contract between you and top rated insurance companies. By making contributions to your Personal Pension over time, you develop a portfolio of guaranteed income available in retirement. Blueprint Income offers a Personal Pension account with the lowest minimum, $5,000. After opening an account, you can make subsequent contributions of as little as $100, each of which will increase your pension check.

Here you can see what contributing to a Personal Pension will guarantee you in retirement income. After just a few years in retirement, you’ll have recouped your initial investment, and the rest will be profit.

You can continue with the enrollment process on your own or fill out the information to have one of our specialists follow up with you by starting with the Personal Pension Builder, where you’ll be able to set a goal for how to grow your pension over time. Note that all future contributions are optional, but it’s always great to have a goal.

How Can I Purchase an ImmediateAnnuity/Longevity Annuity/QLAC?

At Blueprint Income, we offer annuities from more than 15 top rated insurance companies. Click below to get real-time personalized quotes.

smart retirement planning

From there, you’ll get access to our annuity guides and team of specialists to help you analyze your retirement finances and walk you through the application process.

Nimish Shukla

Nimish Shukla

Financial Planning Professional

Nimish has spoken with thousands of customers about retirement spending. As a CFA Charterholder and licensed fixed annuity producer he values the importance of building an income stream for retirement. In addition to his work at Blueprint Income he is also a regular contributor to Nerdwallet.