| Whether or not you outlive your income can be | | | | retirement, pension and annuity payouts cannot at |
| answered with taking an objective and subjective | | | | least meet the 80% target, then you may be in |
| look at your situation. While figures are a useful | | | | some difficulty. The outlook isn't that grave if you |
| guide, our habits and lifestyle determine whether | | | | consider that you'll just have to scale down your |
| we are willing and able to maintain a certain | | | | standard of living. |
| standard of living. The question of outliving savings | | | | Protection products |
| arises because of changing population | | | | Regardless of the stage of life you are at, not |
| demographics and increased life expectancy. | | | | having the base of your financial plan secured can |
| "Baby boomers" form a significant portion of | | | | reduce your savings significantly in a short space |
| population statistics and they have long entered | | | | of time. If you do not have medical expenses and |
| the retirement phase. Your potential longevity, | | | | long-term care covered, you may deplete your |
| age at retirement, pension amount and financial | | | | retirement income and savings a lot faster. It |
| strategies are the main factors that determine | | | | may not be enough to rely on the state provision |
| whether you would outlive your income.i) | | | | to cover these. State benefits have limits, |
| Longevity risk | | | | regardless of country. If you are short on |
| One benchmark in retirement planning is to cater | | | | necessary insurance products when you need |
| for thirty years of retirement. Given that some | | | | them the most, you stand a healthy chance of |
| people retire early, living until age 85 or 80 is not | | | | living well past your finances. |
| that far-fetched for many. You can assess your | | | | Financial strategies |
| retirement income in light of rising costs of living. | | | | Financial strategies can be thought of in terms of |
| Using the current level of inflation and the period | | | | what financial instruments are used to finance |
| of thirty years, you can do a discounting | | | | retirement. Some people have a much lower risk |
| calculation that would let you know how much a | | | | tolerance than others. They prefer to invest in |
| fixed income would depreciate. If you only have | | | | cash options that are highly liquid or income |
| enough savings and income for 20 years of | | | | options like bonds that provide moderate returns. |
| retirement, you may be in trouble. This is a critical | | | | Risk intolerant investors may be at risk of |
| point for those who retire early. Early retirees | | | | outliving their savings. This is due to the fact that |
| may spend as much as 40 years in retirement.ii) | | | | diversified portfolios provided by growth options |
| Age at retirement | | | | such as stock protect against inflation risk and |
| Statistics from LIMRA indicated that there is a | | | | purchasing power decline. For annuitants who are |
| correlation between retirement age and longevity. | | | | receiving payouts, the amount of the payment |
| For example, the life expectancy for a 50 year | | | | depends on the type of plan and company that |
| old retiree is 86, while for a 65 year old (newly | | | | they selected initially. Options that are too |
| retired), it is 66. The reasons for the correlation | | | | conservative would put you at a greater risk of |
| are the subject of speculation and the result may | | | | outliving your savings. |
| even be a spurious correlation. The data proves | | | | To determine if you are at risk of outliving your |
| somewhat interesting. It suggests that those who | | | | retirement income and savings, ask yourself the |
| retire earlier have a higher longevity risk as well. | | | | following questions: |
| Those who retire earlier and draw pension | | | | Am I financially ready to retire? |
| benefits earlier tend to get a lower pension and | | | | Do I have all relevant aspects of my financial plan |
| reduced benefits. This is one reason why some | | | | in place? |
| early retirees seek may have to seek | | | | What percentage of my pre-retirement income |
| employment. | | | | am I likely to retire with? |
| Retirement income amount | | | | Are my investments sufficiently diversified to |
| When you retire, you should have at least 80% | | | | protect its real value or enhance my |
| of your monthly pre-retirement income as your | | | | accumulation? |
| monthly income stream. Ideally, you should also | | | | By assessing yourself according to the criteria |
| have 15 times your annual pre-retirement income | | | | provided and asking the right questions, you may |
| in savings and investments. If this is not the case, | | | | be able to guard against the omnipresent danger |
| then you stand a better chance of outliving your | | | | defined by longevity risk. If you find yourself |
| income and savings. To determine what your | | | | coming up short, there are actions you can take |
| pre-retirement income is, use an arithmetic | | | | to increase your retirement income or improve |
| progression. If your accumulated lumpsum at | | | | your risk management strategies. |