Mixing Investments May Raise Retirement Confidence

A lot of people these days seem to be concerned about outliving their retirement savings. They see stock market volatility, and they get all kinds of agita when they think about having to rely on their portfolio for retirement income.

Well, here’s a little good news for you: some new research suggests that by adding a mixture of different types of retirement assets to your portfolio, beyond just your 401(k) contributions, you may have a greater level of confidence in how long your portfolio will last.

Dr. Michael Finke, the dean and chief academic officer of American College, used statistical analysis to simulate the financial experiences of several thousand retirees in various hypothetical situations. Each one of these simulations made the assumption that the persons were age 65 at retirement with $2 million in taxable and non-taxable retirement assets. They then withdrew 4% of those assets, increasing the withdrawal amount each year with the rate of inflation.

So what did the research find?

Retirees who owned only traditional stock and bond investments had a 29% chance of outliving their portfolio’s assets. But when they added cash value from a permanent life insurance policy to the mix and used it to provide tax-efficient income at retirement, they lowered the likelihood of a retirement income shortfall to 21%. By also adding an income annuity, they found they were able to reduce the risk of a shortfall even further, down to just 16%.

That’s compelling stuff! They’re saying that for the right candidate, the cash value of a permanent life policy can potentially take some pressure off of their portfolio by growing over time and giving them the option of taking income from it at a later date. And by using an annuity as a base for a steady stream of income that continues for as long as one lives, the research says that a retiree would be able to slow the pace of their withdrawals from cash value life insurance, thus stretching their retirement money even further.

Plus, the research also suggests that the legacy—the amount of money available to beneficiaries—may be significantly higher with a mix of income sources when compared to the traditional investments approach.

I don’t know about you, but I feel a lot better when I know how much guaranteed income I’ll have for the rest of my life. And there are all kinds of ways to potentially make this happen. We help folks with requests like these every day here at Lucia Capital Group; all you have to do is give us a call. We’re here to help.