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Saving enough for your 90s

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William Hertzog

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Posted: Friday, December 14, 2012 2:49 pm

Thanks to a range of factors — including medical advances, healthier eating habits and better fitness — Americans are living longer lives. Life expectancy in the U.S. recently hit a record 78.7 years, and the number of Americans living past age 90 has nearly tripled during the last 30 years. But while living well into our 90s is a dream for many of us, the possibility of outliving our savings serves as an eye-opener.

“It’s a universal concern: No matter how much you have accumulated, everybody is worried about making their money last through retirement,” says Donna Peterson, senior vice president in retail retirement at Wells Fargo. A recent survey found that more than half of baby boomers fear outliving their savings more than they do dying.

Fortunately, making a few changes to your financial situation now can help increase the chance that your savings will last your lifetime — no matter how long it spans.

Create ongoing income. Peterson suggests aiming to replace 80 percent to 100 percent of your working income in retirement, but she admits that will vary with time. “Early in retirement, while you’re young and active, you may need to replace 110 percent of what you earned,” she says. “As you age and become more sedentary, your costs may go down.”

Aim to keep growing. On the cusp of retirement, some investors may be content to shift their funds from stocks into certificates of deposit or other conservative investments in order to protect all they’ve saved in their nest egg. But that may be a mistake.

Since retirement can last several decades, you’ll likely need to harness the growth potential of stocks to keep inflation from eroding your savings. Although they come with increased risk, stocks offer better potential for long-term growth than bonds and cash investments. Your financial advisor can help you find a mix of stocks, bonds and cash investments that offers an appropriate balance of risk and return potential.

Plan for long-term care. As you age, you’re more likely to sustain an injury or develop an illness that requires long-term care. But that care — whether in a nursing home or through an in-home health provider — can be very expensive. The national median cost of a single year in a private nursing home is now $87,235, according to insurer MetLife. One strategy to these potential medical costs is long-term care (LTC) insurance, which is designed to cover expenses if you become physically or cognitively impaired.

If you opt for LTC insurance, Peterson suggests buying your policy when you’re in your 50s because your premiums are likely to be more affordable than if you purchased a policy later.

Consider keeping a paycheck. A simple way to stretch your retirement savings is to work longer. Economists Alicia H. Munnell and Steven Sass from the Center for Retirement Research at Boston College notes that delaying retirement by just three to four years — from 62 to 66, for instance — may boost your retirement income by a third.

Working longer can help by:

• Boosting your monthly Social Security benefits (by waiting at least until you are eligible to claim full benefits).

• Increasing the time you spend accumulating a 401(k) balance (through contributions and potential for growth of investments).

• Giving you access to employer-provided health care (which can allow you to avoid paying extra for your own health insurance policy, if you retire before you’re eligible).

• Reducing the amount of time you rely on your retirement savings (income and benefits from employment can offset the need to tap a nest egg — and again, allow more time for assets to work in the market)

A very long retirement is a blessing and a risk. Fortunately, it’s a risk you can plan for, by choosing the financial strategies that make the most sense for you, and reviewing your retirement plan regularly. Just don’t wait — by planning now, you’re more likely to enjoy the luxury of time later. Here are some helpful websites:

• U.S. Centers for Disease Control & Prevention, http://www.cdc.gov/nchs/data/nvsr/nvsr60/nvsr60_04.pdf.

• U.S. Census Bureau, http://www.census.gov/newsroom/releases/archives/aging_population/cb11-194.html.

• Allianz Life Insurance Co. of North America, https://www.allianzlife.com/content/public/Literature/Documents/ENT-993.pdf.

• MetLife Market Survey of Nursing Home, Assisted Living, Adult Day Services, and Home Care Costs, August, 2011, http://www.metlife.com/mmi/research/2011-market-survey-long-term-care-costs.html.

• Center for Retirement Research, “Working Longer: The Solution to the Retirement Income Challenge,” 2008, http://crr.bc.edu/images/stories/myths_and_realities.pdf.

• William J. Hertzog, CIMA, is first vice president of investments for Wells Fargo Advisors, LLC, in Ahwatukee. Reach him at (602) 952-5133 or www.TheHertzogGroup.com. Wells Fargo Advisors, LLC, member SIPC, is a registered broker-dealer and a separate non-bank affiliate of Wells Fargo & Company. Note: Investment and insurance products are not FDIC insured, not bank guaranteed and may lose value.

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