As a result of the coronavirus, many individuals are taking a closer look at the issues related to retiring comfortably. Schwab’s Retirement Plan Services unit recently published a survey using information from its clients holding 401(k) accounts. On average, plan participants say they needed to save $1.9 million for a comfortable retirement.
Naturally, the amount which needs to be saved depends on many factors. For example, an individual who waits until age 70 to apply for Social Security benefits will be able to retire with a smaller investment account. Another important issue is other income sources. Although most companies no longer offer “defined benefit” retirement plans, individuals fortunate enough to have a pension obviously can have a comfortable retirement with a lower amount saved in their 401(k) plan or IRA account.
So, what kind of retirement would $1.9 million in savings get you? If you were to use it to buy a single premium immediate annuity, as a 65-year-old man, you could receive approximately $9,188 per month ($1,268 taxable) from a top-rated insurance company. If you bought a joint life annuity, for a 65-year-old man and a 65-year-old spouse, you would be entitled to $7,762 per month ($1,428 taxable).
According to the Schwab survey, 41% of respondents have made changes to their 401(k)s as a result of the coronavirus and its economic impact, 14% have rebalanced their portfolio, 12% have increased their contribution rate, 8% have increased their stock funds/equity allocation, and 7% have decreased their allocation. One in four respondents consulted a financial professional, and two-thirds of them made changes in their accounts. Twenty-six percent rebalanced, 22% increased their contribution rate, and 17% increased their stock-market exposure.
Wenliang Hou, an economist for the Center for Retirement Research at Boston College, identified five sources of risk that a “typical” retiree would face in retirement. They are:
Hou believes that many retirees underestimate their health costs in later life. Hou identifies three policy implications associated with his research.
I agree, which is why I recommend reliable sources such as Stan Haithcock (www.stantheannuityman.com), who is very knowledgeable and only recommends cost-effective products. If you wanted to know the monthly amount you could receive from a single premium immediate annuity, you can use his calculator at https://stantheannuityman.com/spia-calculator. For an estimate, you can enter some personal information, that of your spouse (for a joint annuity) and whether the funds originate from an after-tax source or an IRA or 401(k). Specify the amount of your investment, your birth dates and your resident state, and you will receive multiple estimates from high-rated insurance companies.
Other good sources of information an AARP article titled “Five things you should know about long-term care insurance” and an article by Evan Tarver titled “Four Best Alternatives to Long-term Care Insurance.”
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Elliot Raphaelson welcomes your questions and comments at raphelliot@gmail.com.
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