Here’s an interesting statistic: Over the past three decades, the centenarian population in the United States has grown about 66 percent, according to the U.S. Census Bureau.
This doesn’t mean that you will live to 100 — but the possibility may not be as remote as it once was.
If you plan to retire in your mid-60s, and you are in good health, you may have two or even three decades ahead of you. To enjoy this time to the fullest — and help prevent the possibility of outliving your financial resources — 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. Furthermore, 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 — from which to draw income. Nonetheless, investments can play a big role in providing you with income you’ll need during retirement.
Many retirees depend on fixed-rate investments for much of their retirement income — so it’s a real challenge when interest rates are low, as they have been the past several years.
Consequently, when you retire, you’ll need to be aware of the interest-rate environment and the income you can expect from these investments. Longer-term fixed-rate vehicles may be tempting; 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. 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.
While it’s important to invest for income, you can’t ignore the need for growth — because you won’t want to lose purchasing power to inflation. We've experienced mild inflation recently, but over time, even a low inflation rate can seriously erode your purchasing power.
If your current monthly costs are $3,000, they will be about $4,000 in 10 years with a 3 percent annual inflation rate. In 25 years at that same rate, your monthly costs will have more than doubled to about $6,200.
To help protect yourself against inflation risk, consider having at least some investments that offer growth potential, rather than only owning fixed-income vehicles. 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 adviser 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 — but it would be a good feeling to know that you could afford to do so.
Joe Faulk is a financial adviser in Crestview.
This article originally appeared on Crestview News Bulletin: FINANCIAL FOCUS: Invest now to prevent outliving your income