Retirement Savings with Your Future in Mind

Published on April 4, 2017

Saving for a big ticket item like a car is relatively easy—you determine what kind of car you want, how much you want to spend and then you start saving. Saving for retirement is much more challenging. For instance, how long will you need the money? Since no one knows how long they will live, answering that question and undertaking the necessary savings needed to retire successfully can be tough.

According to the Society of Actuaries, people are living 10 percent longer than they did 20 years ago. Men who reach the age of 65 can be expected to live to an average age of 86.6 and women to 88.8. And, those are only averages. Online longevity calculators such as the Actuaries Longevity Illustrator  may provide additional insight into your potential longevity.

With longer life spans on the horizon, individual investors need to get more aggressive about retirement savings to be able to fund their desired standard of living in retirement and avoid falling into longevity risk. Longevity risk occurs when the individual depletes his/her resources before the end of life. This problem can affect anyone but typically hits widows over 85 because income falls by about one-third after the death of a spouse. However, it can happen sooner than that. According to Social Security Administration data, 14.5 percent of widowed women over the age of 65 live in poverty; as well as divorced women (17.1 percent); and those who never married (23.2 percent).

Longer life, lower investment returns

Consider this: A 35-year-old couple with household income of $50,000 would need to save between 11 percent and 13 percent in pre-tax dollars to maintain their standard of living, while the same couple with household income of $100,000 would need to save between 13 percent and 16 percent.

Since investors are experiencing high asset prices on stocks and lower returns on safe assets such as bonds, aggressive savings alone won’t resolve this fiscal challenge. In fact, a consistently low-return environment means the percentage of income a person needs to save to meet a retirement goal needs to increase and also reduces the income a person can expect to receive once that goal is reached. All of this translates into lower expected returns in the future.

If reality bites, bite back

Here are some suggestions to overcome the financial reality:

Self-directed IRAs can provide informed investors the ability to develop a more diversified portfolio that they control. A self-directed retirement plan allows the individual to respond to economic downturns or take advantage of opportunistic (and tax-advantaged) investments with greater flexibility.

At Next Generation, our professionals are available to answer questions about self-directed retirement plans and the alternative assets allowed within these plans, and our transaction specialists ensure that you are investing within IRS guidelines. Since we do not give investment advice, we strongly recommend you consult your trusted financial advisors about your investments and any tax implications they have for your unique situation.

Want to put your retirement plan in a better state? Contact Next Generation at 888.857.8058 or, or read through our Starter Kits for more information.