Experts say people should prepare for the new reality of retirement.
Research from Manulife John Hancock Retirement found that with people living longer than ever before and some retiring earlier than expected, the 40-year retirement window is increasingly becoming the new norm. Meanwhile, with pensions on the way, the “three-legged stool” retirement model of Social Security, pensions and savings looks like a two-legged stool.
Rethink the 4% rule.
With the cost of goods and services rising, savers need to carefully consider whether the 4% rule — which involves withdrawing 4% of your savings in your first year of retirement before adjusting for inflation in subsequent years — makes sense for long-term retirement. The 25x rule indicates that you need 25 times your annual expenses to retire, and it can be another way to determine how your living expenses should determine your withdrawal rate.
People looking to retire should consider inflation rates for basic goods and services, but also health care, which is expensive.
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Re-evaluate the 60/40 portfolio
For some retirees, the old 60/40 rule makes sense in the new reality of retirement. This portfolio model suggests that you should have 60% of your money in bonds and 40% in stocks.
However, growth may be more important to some retirees than others. A 50/50 portfolio would allow you to balance growth and income, while a 70% stocks portfolio would make sense for the aggressive investor.
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Consider a small retirement
The reality of retirement is changing, but so is the definition. Although retirement is often portrayed as not working another day of your life, retirement is a challenge in this sense.
Taking on a part-time job can provide you with extra income and help you maintain your nest egg. It’s a way to reduce risk while keeping yourself active. Retirees can choose a few part-time gigs with flexible hours or offer remote work. These opportunities don’t usually have strict schedules like regular jobs.
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Look into term insurance
As people live longer, some are turning to Qualified Longevity Annuity Contracts (QLACs) to receive steady payments throughout their retirement years. You can start a late payment date when you turn 85. Longer deferral periods increase the size of future payments, such as Social Security.
Be flexible
The new reality of retirement suggests that it will take more time – and possibly more effort – to have an adequate nest egg. Rising costs and longer life expectancy make it necessary to consider new rules of thumb when it comes to saving strategies.
Being flexible and managing your finances can help ensure that you can retire when you are ready.
