Vail Daily column: Could you afford to live to 100?
June 26, 2014
Here's an interesting statistic: During the past three decades, the centenarian population in the United States has grown about 66 percent, according to the U.S. Census Bureau.
You might not join that group — but the possibility may not be as remote as it once was. In any case, if you retire in your mid-60s, and are in good health, then you may well have two, or even three, decades ahead of you. To enjoy this time to the fullest — and to help prevent the possibility of outliving your financial resources — you will need to invest for income and growth throughout your retirement years.
As a retiree, how much income do you need from your investments? There's no one right percentage for everyone. You shouldn't have to rely solely on your investment portfolio, because you may have other sources — such as Social Security and potentially your employer-sponsored retirement plan. Nonetheless, your investments can play a big role in providing you with the income you'll need during retirement.
Find A Balance
Longer-term fixed-rate vehicles may be tempting, but these longer-term investments may have more price fluctuation and inflation risk than shorter-term investments.
Many retirees depend on fixed-rate investments for a good portion of their retirement income — so it's a real challenge when interest rates are low, as they have been for the past several years. Consequently, when you retire, you'll certainly need to be aware of the interest-rate environment and the income you can expect from these investments.
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Longer-term fixed-rate vehicles may be tempting, as they typically offer higher rates than shorter-term ones, but these longer-term investments may have more price fluctuation and inflation risk than shorter-term investments. Ultimately, you'll likely need a balance between short-, intermediate- and long-term fixed-income investments to provide for a portion of your income in retirement.
Don't Ignore Inflation Rates
Also, you can't ignore the need for growth because you won't want to lose purchasing power to inflation. We've experienced quite mild inflation recently. But over time, even a low rate of inflation can seriously erode your purchasing power. To illustrate: If your current monthly costs are $3,000, then they will be about $4,000 in 10 years with only a 3 percent annual inflation rate. To help protect yourself against inflation risk, you should consider having at least some investments that offer growth potential.
And some investment vehicles, such as dividend-paying stocks, can offer both growth potential and current income. In fact, some stocks have paid, and even increased, their dividends for many years in a row, giving you not just income, but rising income. (Keep in mind, though, that companies are not obligated to pay dividends and can reduce or discontinue them at any time.)
To determine the right mix of growth and income vehicles for your individual needs, consult with a financial advisor who is familiar with your retirement plans, your risk tolerance and your family situation. And it may well be a good idea to plan for a very long retirement. You may not live to be 100 years old — but it would be a good feeling to know that you could afford to do so.
This article was written by Edward Jones for use by your local Edward Jones Financial adviser. Tina DeWitt, Charlie Wick, Chris Murray, Dolly Schaub and Kevin Brubeck are financial advisers with Edward Jones Investments. They can be reached in Edwards at 970-926-1728 and in Eagle at 970-328-4959 and 970-328-0361.