J.P. Morgan Asset Management wants you to rethink how you will pay for retirement. The multinational investment bank says retirement investors should secure enough guaranteed income from pensions, annuities and Social Security to pay for basic living expenses. These include housing, food, healthcare, property taxes, cellphone and internet service, as well as any other stable or fixed expenses. The strategy also calls for variable expenses like dining out and travel to be covered by other retirement income sources. Let’s break down J.P. Morgan’s tips for protecting your retirement and examine how you could get guaranteed income.
A financial advisor could help you create a comprehensive financial plan that combines guaranteed income with an investment portfolio for your retirement needs and goals.
J.P. Morgan’s 10th annual Guide to Retirement says many Americans aren’t calculating their retirement needs, spending more on healthcare as they get older, and living longer. And when combined with inflation, these factors could put them at greater risk for running out of money.
In order to establish a retirement baseline, the multinational investment bank proposes that investors take a “guarantee the floor” approach, which focuses on securing guaranteed income to pay for stable or fixed expenses. J.P. Morgan also recommends using other sources of income like an investment portfolio to cover non-essential costs.
Investors using this strategy will need to look outside of the stock market for guaranteed income sources. This “guarantee the floor” approach is usually established via pensions, annuities and Social Security; and through financial investments like bond and CD ladders.
J.P. Morgan’s guide breaks down four additional key points to protect your retirement:
- Prepare for longevity. The IRS has raised the average life expectancy to 84.6, which will push retirees to spread assets over more years. The guide says those retiring at 62 or 65 could live more than three decades in retirement. And J.P. Morgan recommends that retirees continue investing a part of their portfolio for growth so that they could maintain their buying power, especially during inflation.
- Expect more expenses after age 80. The study shows that older Americans tend to spend less in all financial categories except healthcare and charity. Keeping this in mind, your retirement plan should account for higher healthcare expenses as you get older.
- Get financial assessment. J.P. Morgan’s study underscores the need for setting up retirement savings checkpoints to help investors keep track of their retirement goals. A financial advisor could also help you adjust your goals as your finances change.
- Plan for inflation. Inflation could make your basic living costs more expensive. And the investment bank says you should take a critical long-term view of your retirement plan to make sure that it absorbs those price hikes. Investors could also diversify their portfolios by hedging against inflation with commodities, consumer staples and real estate.
5 Ways to Get Guaranteed Retirement Income
The most common types of guaranteed income include Social Security and employer-backed pensions. Here are five smart ways to boost and supplement those streams of income.
- Delay Social Security. Claiming Social Security before your full retirement age will cut significantly into your benefits. However, you can increase your Social Security income by delaying retirement. In doing so, you will earn delayed retirement credits, which could be a financial windfall for your golden years.
- Buy an annuity. This insurance contract can supplement your Social Security with a pension-like income stream. You pay into an annuity through a lump sum or multiple payments. The insurance company then uses an investment strategy to grow your assets. Here’s a step-by-step guide to buy an annuity.
- Get a reverse mortgage. With retirees sitting on record levels of home equity, a reverse mortgage is another way to supplement retirement income. This home loan offers borrowers monthly payments, a lump sum or a line of credit based on the value of their primary home. Reverse mortgages are available to homeowners age 62 and older.
- Add dividend investments to your portfolio. While retirees typically want to take on less risk, dividend investments can boost your guaranteed income with periodic payments from stocks, mutual funds or exchange traded funds (ETFs). Here’s a guide to investing in dividend mutual funds.
- Create a bond or CD ladder. These portfolios are made up of fixed-income securities with different maturity dates and can offer investors an income stream with minimal risk. This guide will show you how to build and manage a bond ladder.
J.P. Morgan calls on retirement investors to secure enough guaranteed income to pay for basic living expenses. Inflation, variable healthcare expenses and longevity could put retirees at greater risk of running out of money. Though getting financial assessment early on and investing a part of your retirement portfolio after retirement could also help you maintain your buying power and hedge against inflation in your golden years.
Retirement Planning Tips
- A financial advisor can help put your retirement plan into action. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
- Fidelity says your retirement investments should cover 45% of your pre-retirement income with Social Security benefits at age 67 making up the rest. SmartAsset’s retirement calculator can help you estimate how much you’ll have saved by the time you’re ready to retire.
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