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For many baby boomers looking to retire in the next few years, the biggest worry is not whether they can retire, but if they’ll outlive their savings.
It’s a valid concern: One in every four people turning 65 today can expect to live past their 90th birthday, and one in 10 will live past 95, according to the Social Security Administration.
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Resolve to get most of your investments out of tax-deferred plans. If you’re working for a company that provides a match for 401(k) contributions, by all means, contribute up to the maximum match. That’s free money – you’d be crazy not to take advantage. But investments that can be more strategic in terms of taxes should also be considered: Roth IRA, municipal bonds, life insurance or real estate. No one expects taxes will go down – they’ll be going up. Uncle Sam already has a lien on your IRA or 401(k); don’t let his lien, or the taxes you’ll owe, continue to grow. Go ahead and pay now, and your future retired self will be glad you did.
Resolve to have a portfolio that generates a steady or guaranteed paycheck. The ideal financial security for retirement is having a guaranteed income that increases with inflation. I suggest planning for an income that meets or exceeds your annual income now so, for example, if you’ll be getting $1,000 a month from Social Security at age 62 and your current income is $4,000 a month, you need to have a plan to guarantee $3,000 a month to cover that gap. Annuities and life insurance are investments that may provide an income you cannot outlive, so consider them for at least part of your portfolio. You don’t want them to make up 100 percent of your portfolio, but they should provide the foundation.
It’s important to start thinking now about where you want to be in retirement and what combination of investments will ensure you have the lifestyle you want for as long as you live.
At 65, you don’t want to be making risky investments because you’re panicking about not having enough money. Now is the time to plan.