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Avoid Outliving Your Money: An Investment Strategy

After spending roughly 50 years in the workplace, one of the biggest fears many of us have is outliving the money that we have saved. When Social Security began, the life expectancy was barely equal to the retirement age. Now it is pretty common to see people living at least ten years after retirement and many are passing 85 and 90 with ease. With longer life comes the very real possibility that you will run out of money and have to depend on your monthly government check. Here are a few tips to help you avoid that.

Save 5-Years Worth of Fixed Expenses
First, you need to dedicate money to your fixed expenses. Everything from housing to food, transportation, health expenses and utility bills has to be planned for. Once you have a number in mind, try putting about five years worth of those costs in a liquid asset. Something like a CD or money market fund. These investment vehicles are returning next to nil, but they are safe and can be accessed easily.

Consider Long-Term Care
With people living into their eighties and nineties, there is a definite risk of high health care costs. One of the costliest is long term care. You should look into long term care insurance. Be careful, though. These are expensive policies and many carry limits on the benefits. The American Association for Long-Term Care Insurance says that the average annual cost of a policy for a 57-year-old is $1,900. For a couple it jumps to $2,500. Annuities are another option. A new tool within that group is called a longevity annuity. It allows a holder to take a lump sum and convert it into a lifelong income stream, like an immediate annuity. Where it differs is in that you pick a date in the future to start getting that income. Most typically that is age 85.

Consult a Professional about Tax Implications
Keep the tax man at bay. Many of your retirement investments have been made on a tax-deferred basis, so Uncle Sam will have his hand out when you make a withdrawal. You need to weigh your options.

With a taxable account, net long-term capital gains are taxed at a lower rate than that for withdrawals from tax-deferred retirement plans. You must also consider that taking money out of a retirement account or selling securities at a sizable taxable gain (especially when compared to pulling cash from a certificate of deposit, money-market fund, savings or checking account) can cause your Social Security to be taxed. You will want to consult a tax professional or a financial planner to fully understand these implications.

Beating Inflation
Inflation is a huge challenge for retirees. Recently it has been staying at or near 3 percent, so most investments will cover it. That is not always going to be true. While inflation may go up, there is no guarantee that even the safest of bond funds will keep pace with it. You may want to consider looking into real-estate investment trusts for part of your money. While these funds can be a hedge against inflation and market volatility, you have to be careful. ”Focus on the most stable, high-quality corporate tenants,” says Tim Lee, managing director of Monument Wealth Management.

It may seem as if retirement could be just as stressful as your working life. It doesn’t have to be if you plan carefully. These tips may help you retire knowing that you will be flush throughout your golden years.

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