If you’re planning to retire soon then you remember growing up with the inflation of the 1970s. In 1970 the inflation rate was 5.5% and continued to climb until it peaked in 1980 at 14%. We are seeing the return of inflation – How will that effect your hopes for retirement? How will this impact you during retirement planning?
What is The 4% Rule?
Many advisors have used the 4% Rule when they built retirement plans. They have you in a basket of stocks and mutual funds and will systematically liquidate those funds in your retirement years. The 4% Rule works by taking your starting retirement funds, multiplying that total by 4% and that will be your annual withdraw rate. For example, if you start with $200,000 and apply the 4% Rule you will withdraw $8,000 per year ($667 per month). Some advisers will have you increase that withdrawal amount by the inflation rate each year, but most will hold the withdrawal rate steady. The hope is that the funds will last 25 to 30 years. Will this advise work with inflation?
How did The 1970s Markets impact Retirement Planning?
As inflation began to move up in the 1970s the stock market at first rose until January 1973. This peak was not seen again until early 1980. If you are withdrawing the same amount of money each month in retirement, but the pool of funds is shrinking, you are in danger of outliving your money. What if you reach age 80 and suddenly find out that all of your retirement funds are gone? Can I have lifetime income in retirement?
How Can I Guarantee Lifetime Income During Retirement Planning?
If you are with an adviser who wants you in the stock market they can not offer a guaranteed lifetime income solution. That can be obtained with an insurance company. For hundreds of years annuity products have been offered to provide lifetime income. You can trace the use of annuities back more than 1,000 years. In the last 25 years there have been many innovations in the world of annuities. The guarantees of an annuity are based on the financial strength of the insurance company that offers the product. At Safety 1st Retirement we use A rated companies with long track records.
What Is the Right Annuity for my Retirement Plan?
It is important to understand your goals and hopes for retirement. An annuity has to be suitable for your needs and not all products are a good fit. Our team starts by asking a lot of questions. Issues like the monthly budget, health and family issues tie into the process of making sure that what we recommend is suitable for you. Let’s have a conversation and determine if an annuity can be an important part of your retirement plan.