- Get an overview of the baseline cost for healthcare, including regular doctor visits, prescriptions, insurance premiums, dental and vision. This cost can be built into your income floor.
- Carefully consider post-retirement insurance plans that cover any gap in Medicare coverage.
- Learn about insurance policies that help cover long-term care healthcare needs.
- Explore Health Savings Accounts or Retiree Health Savings Plans that let you save health dollars in a tax-friendly way.
Step 2: Understand the challenges you’ll face
Withdrawing from your retirement nest egg is a whole different animal than saving for it. That’s because the risks retirees face are fundamentally different. It’s not just about protecting your assets from market volatility. It’s about the possibility of outliving savings, inflation, withdrawing money in a down market, and more. Here, we’ll help you understand the potential headwinds, so you can help keep your retirement financially on track.
By the numbers
Lifespans are increasing
|Man aged 65||Woman aged 65|
|80% chance||81 years||82 years|
|50% chance||89 years||90 years|
|25% chance||95 years||96 years|
Source: TIAA Mortality Tables, 2018.
Consider planning for income you can’t outlive
People are living longer than ever before. This increases the potential risk of outliving your retirement savings. Think about protecting yourself by creating a guaranteed income stream that you cannot outlive through a fixed annuity to help cover essential expenses. This is also known as creating a retirement income floor. Please note that guarantees are based on the claims-paying ability of the issuing company.
How to build a retirement income floor
Step 1 Figure out what your essential needs are and how much you will need to cover these expenses each month.
Step 2 Determine how much is covered by your income sources, such as Social Security or defined benefit pensions.
Step 3 If there's a gap, consider annuitizing a portion of your savings into income you can’t outlive.
Step 4 Allocate the balance of your savings appropriately to help pay for discretionary expenses while helping keep pace with inflation.
Sequence of return risk
Learn about the risk of bad timing
The market’s performance in the early years of retirement can significantly impact the longevity of your investment portfolio. This is known as sequence of returns risk—the chance that your investments will provide low or negative returns at the beginning of retirement when your portfolio is at its largest. A thoughtful income plan can help mitigate the risk of getting retirement started off on the wrong foot financially.
Don't let market volatility get you down
How your assets are invested in retirement can help you weather the markets ups and downs. Being too conservative, too early could cause you to run out of money prematurely. And being too aggressive could increase your exposure to market volatility and the possibility of losing money. A well-diversified portfolio that includes a reliable source of income from an annuity can help keep the market from derailing your long-term plans.
Don't forget about inflation
Food, medical care, transportation and recreation are likely to cost considerably more 20 years from now than they do today. One way to consider reducing the impact of rising prices is to keep a portion of your portfolio in investments with growth potential, such as equities. However, you may want to balance this with your exposure to market volatility and the risk of investment losses.
By the numbers
Inflation’s effect on purchasing power
Inflation can really shrink the buying power of your money over the long term. Notice the effect different inflation rates have on the prices of common expenses over a 20-year period nationally.
Source: Bureau of Labor Statistics, U.S. Inflation Calculator. 2,4
Consider tapping into retirement savings carefully
There is a real risk of drawing down your assets too aggressively to meet your spending needs. To help avoid depleting your assets too quickly, think about pairing a guaranteed lifetime income floor with a flexible withdrawal strategy that is monitored regularly and adjusted for changing conditions.
Keeping up with healthcare costs
If not properly managed, rising health care costs coupled with living longer in retirement can cause big trouble. So make sure to plan for increasing costs, and maximizing your benefits and savings opportunities.
By the numbers
The average amount a retired couple with high healthcare expenses may need to cover healthcare costs for the rest of their lives.
Source: Employee Benefits Research Institute, 2018. 5
Maintain a sense of control
Financial skills are often the first loss in aging. If cognitive impairment is a concern for you, a combination of an income plan that guarantees your basic needs are covered and an estate plan can help safeguard your assets. You may want to consult with your legal and tax advisors about your estate planning needs.
How TIAA can help
Brush up on Social Security and Medicare.
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1 National Association of Theatre Owners. Feb. 6, 2019. http://www.natoonline.org/data/ticket-price/
2 Bureau of Labor Statistics. Feb 6, 2019.
3 United States Postal Service. Feb. 6, 2019
4 “Consumer Price Index Data from 1913 to 2018.” U.S. Inflation Calculator. Feb. 6, 2019 http://www.usinflationcalculator.com/inflation/consumer-price-index-and-annual-percent-changes-from-1913-to-2008/
5 "Savings Medicare Beneficiaries Need for Health Expenses: Some Couples Could Need as Much as $400,000, Up from $370,000 in 2017 ." https://www.ebri.org/content/savings-medicare-beneficiaries-need-for-health-expenses-some-couples-could-need-as-much-as-400-000-up-from-370-000-in-2017
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