January/February 2009
Gone are the days when many Americans could depend on a defined benefit pension, and the future of Social Security as we know it is questionable. We know it's up to us to save for retirement.
Age and health-care expenses
Two factors promise to increase the amount of income Americans need in retirement. First, we are living longer -- the average life expectancy of a male born in 2006 is 75.4 years. A female born in 2006 is expected to live to an average 80.7 years. And the longer you live, the longer you're likely to live. In 2006, a 65-year-old male is expected to live an average of 17.4 more years, and a 65-year-old female extends her average life expectancy 20.3 years -- or to age 85.*
Second, longer lives may result in higher health-care expenses, requiring more of your retirement income. Health insurance has grown increasingly expensive, and fewer companies offer subsidized retirement health insurance.
Once you become eligible for Medicare, you'll still incur expenses. Many Americans pay for Medicare Part A through workplace deductions for Medicare tax during their working years, thus they don't pay for it in retirement. However, deductibles and coinsurance can be steep. Medicare Part B pays for some health care not covered by Part A, but premiums rise with inflation, and again, there are deductibles and coinsurance. Thus, many individuals pay for private Medigap insurance to fill in some of the gaps and Medicare Part D to help defray a portion of prescription drug expenses.
Invest for retirement
With so many retirement expenses and inflation that, even at small annual increases, will reduce the future value of a dollar, individuals may want to consider investing at least a portion of their retirement income in potential growth investments, such as stock mutual funds.** Another alternative, to achieve at least some guarantees, is to put a portion of your investment dollars into a fixed annuity with a lifetime income option that cannot be outlived.***
However you choose to invest for retirement, be prepared for it to be longer and more expensive.
*** National Vital Statistics Reports, Vol. 56, No. 16, June 11, 2008, Table 6
*** Past performance won't guarantee future results. An investment in stocks or mutual funds can lose principal. Because mutual fund values fluctuate, redeemed shares may be worth more or less than their original value. Consider investment objectives, risks, charges and expenses and read the prospectus carefully, provided by your registered representative, before investing.
*** Guarantees vary and are based on the claims-paying ability of the issuing insurance company. There is a surrender charge imposed generally during early years of the contract. Withdrawals prior to age 59½ may result in a 10% federal tax penalty in addition to ordinary income taxes.
FINRA Reference #FR2008-0908-0240/E 12/04/08 |
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