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Over 100 years ago leaders in Great Britain debated what would be a reasonable age for public retirement benefits to start: 65? 70? The U.S. chose both: 65 for “full retirement age” for ability to claim Social Security benefits and 70 for the age at which traditional IRA and 401k benefits must be taken. The SECURES Act has now extended that to 72. “Full retirement age” is creeping up to 66 or 67 with an 8%/year lifetime increase in benefits for each year we delay taking Social Security up to age 70.

So happy 70th! And happy 72nd!

Ways to make your money for retirement last

What will make your money last? The average American retires with Social Security and $172,000 in savings.1 That is not as good as the corporate pensions our parents had. We have to stretch it. To stretch it, we have to allocate it well.

Create an emergency fund

Everyone needs an emergency fund. When we were working, three to six months would probably do: if we lost a job, we could probably find a new one in that time. Now, looking at retirement, we have to outlast a bear market. The average bear market lasts three years. We need to invest money for our anticipated, ordinary expenses for three years in something “safe” such as CDs or Treasuries, knowing that the lower earnings will be compensated for by not having to sell other investments at the bottom of the market.

Create a rainy day fund

We also need an accessible rainy day fund. Adverse health events and worsening conditions may not occur until our 90s – or they may happen tomorrow. There will be deductibles and co-pays and personal and health care expenses during the elimination period for any long-term care insurance or while our Medicaid application is pending.

Someone else should also be able to access this: our spouse as joint owner or someone else as convenience signer on a checking or savings account; an agent or co-agents under a Durable Power of Attorney; a successor trustee under a Revocable Living Trust.

Particularly if we may be relying on Medicaid for long-term care, we will want to arrange for distribution of our earthly remains. We can prepay. We can get a small life insurance policy payable to our estate. We can leave enough in an account held joint with right of survivorship with our spouse. We can donate.

Invest your money

The rest of our money can be invested to pay for our daily expenses, our long-term care and any special treats or gifts, whether during life or through our Will or a trust. But how?

We might use part of it to buy rental real estate, knowing that sooner or later we will need to hire a management company.

Most retirees roll their 401(k) into an IRA, invest it in stocks, bonds, mutual funds and ETFs and receive their required minimum distributions, perhaps increasing these with age to offset the ever decreasing buying power of Social Security retirement benefits. The yearly distribution will vary with the amount in the traditional IRA (no minimum distribution is required to be taken from a Roth IRA) divided by the number of years which the Internal Revenue Service sets. For example, a 70 year old taking retired minimum distributions in 2019 would divide the amount by 27.4, as though the money had to last until he was over 97. Knowing that this money may need to outpace inflation for another 30 years, we may want a certain percentage in stocks or stock mutual funds and ETFs. Knowing that returns and amounts to be distributed will vary from year to year, we may want a certain percentage in bonds or bond mutual funds.

Some people, ignoring the risk of inflation and falling for the siren song of “money for life” buy annuities. Perhaps the principle argument for fixed annuities is poor individual investor performance. While the S&P 500 Index had an average return of 11.06% for the 30 year period ending December 31, 2014,2 the average individual investor – who also invested in bonds, CDs, etc. – earned 3.79. Fixed annuities did a smidgen better. But both kept only slightly ahead of inflation and neither have earned enough to outpace the growing cost of medical care or provide for the long-term services and supports most of us will need even if we never step foot in a nursing home.

Variable annuities carry annual fees which often exceed 3%, typically resulting in a corresponding low return as compared to a balanced investment in mutual funds. Principal could be lost. There could even be negative returns.

Equity-indexed annuities, also called fixed-indexed annuities, are a hybrid. Principal and a stated interest rate are guaranteed (assuming the insurance company can pay3). Additional “interest” depends on the performance of an index, generally the S&P 500 but with a ceiling or ceiling-like features. Some people look at this as an acceptable cost for a guaranteed minimum return.

You could do the same thing yourself by laddering bonds or CDs and topping them off with an S&P 500 index fund. You would not have to pay the insurance company – or the annuity salesman.

The question is: how much would you withdraw – and when? The more you withdraw early, when you are more likely to travel, go out to dinner or enjoy an expensive hobby, the less you will have to earn the money you need later, not only for daily living expenses but for someone to clean and cook, an on-call chauffeur such as Uber, and personal and medical care.

An equity-indexed annuity, like Social Security, is a break on your spending. Like Social Security, it will not keep pace with inflation and rising medical costs. Will trusting an insurance company with some of your retirement savings be worth it?

That depends not only on inflation and the ups and downs of the market. It also depends on your own investment and spending.

1 U.S. Office of Government Accountability 2015 study.
2 2015 Dalbar study
3 Before buying an annuity, check out the company’s financial strength and ability to pay not only at A.M. Best and Standard & Poor’s but also at Weiss. The $25/month access fee may be the best $25 you ever spent.


Elder law attorney, Terry Garrett, is a member of the National Academy of Elder Law Attorneys and is an Approved Guardianship Attorney. She assists people in elder law, estate and special needs planning, guardianship and settling estates. She graduated with honors from Cornell University. She was on the Dean’s List at Wharton Business School. She earned her J.D. at Columbia Law School, receiving the Parker Award and a Mellon Fellowship.


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