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None
of us can predict how long we will live.
And yet, as you chart your long-term
financial goals, you will at least want
to think about longevity because it is a
key factor in developing appropriate
savings, investment and retirement
strategies.
For starters, make an
educated guess about how long you might
reasonably expect to live, taking into
account your own health-related
characteristics and your family's health
histories. You might also want to
consult with an actuarial table.
You might be surprised at
the results. With advances in medicine
and greater awareness of healthy
lifestyles, we are living longer than
ever before. In fact, half of the
65-year-olds alive today will likely
live beyond age 83, according to the
Centers for Disease Control.
In short, you may need to
plan on spending two, or even three,
decades in retirement, a possibility
that affects some important areas,
including the following:
Risk tolerance. Your
individual risk tolerance helps
determine the investments you choose. In
other words if you are risk-averse by
nature, you may be more inclined to
invest in fixed-income vehicles, such as
bonds or certificates of deposit, that
may offer greater preservation of
principal but less chance of capital
appreciation. Or, if you don't mind
taking on a higher degree of risk to
your principal in exchange for
potentially higher returns, you may be
drawn more to stocks. But if you believe
that you are likely to live a long life,
you may need to step outside your
natural risk tolerance to choose a
diversified mix of investments that
offer the growth potential you need to
stay ahead of inflation along with
sufficient income during your retirement
years.
Social Security.
You can begin collecting Social Security
at age 62, but your monthly checks will
be larger if you wait until your full
retirement age, which can be anywhere
from 65 to 67. For every year past your
normal retirement age that you delay
collecting benefits, you will get bonus
payments, which can be substantial. Once
you reach 70, you'll have earned the
largest monthly payment you're going to
get. You can use your projected
longevity as one important factor in
determining when you should start
collecting Social Security.
Retirement income.
Once you retire, you will need to decide
when to start taking money from your
401(k) or other employer-sponsored
retirement plan. You' will also need to
decide how much you should take each
month. And you will need to establish a
sensible withdrawal plan for all the
other investments in your portfolio.
These decisions hinge, in part, on about
how long you think you are going to
live. For example, if you plan to retire
at 65 and you believe you will live
another 30 years, you will want to
withdraw less money per year than if you
thought you were going to live another
20 years.
Get help
with number crunching. It is not
always easy to incorporate one's
longevity into financial strategies and
you may want to consult with a qualified
financial professional, someone with the
experience and technology to provide you
with a number of savings/investment
scenarios, based on different life
expectancies. It is always a good idea
to become familiar with the
possibilities that lie ahead.
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