Life expectancy in the U.S. is on the rise. This raises the troubling question many retirees are facing: what happens if I outlive my assets? The following are some tips on how to avoid this scenario from occurring.
The “4%” rule
Traditionally it was recommended that if you only withdrew up to 4% of your assets the first year you are retired and then modified withdrawals each year to take inflation into account, then you should not have to worry about outliving your assets. However, now it is recommended forgoing the inflation adjustment. And, if investment returns are good, you may even be able to adjust upward.
Do you really need long-term care insurance?
Many people understand that it is likely they may need nursing home care and that nursing home care is prohibitively expensive. While taking out a long-term care insurance policy in your younger years may seem like the answer to this problem, these policies can be costly as well. There are other estate planning strategies you can use to pay for nursing home care if it comes to that.
Should you consider a reverse mortgage?
Although reverse mortgages can be complex and costly, it is possible to use a reverse mortgage to fund your retirement. A reverse mortgage allows those age 62 and above to utilize the equity in their home without having to sell it. The loan is paid off either when they sell their home, move or pass away. You can take out funds either as a lump sum, as a line of credit or as a monthly annuity. Note that interest may accrue on your reverse mortgage. You also will have to continue paying property taxes and homeowner’s insurance. Also, there may be limits on how much you can take the first year you are tapping into the reverse mortgage. However, a reverse mortgage may work out for a retiree who is house-rich but cash-poor.
As this shows, you have options if you fear you may outlive your retirement savings. It is important to make sure you understand all your options when estate planning, so you can make informed decisions that are in your best interests.