The sooner you start thinking about your retirement, the better. Whether you learn how to buy palantir stock and invest for the future, or just put it into a retirement fund, it’s important you do something. Last year my wife and I each bought a fixed index annuity with a guaranteed lifetime benefit. The main reason why is we can begin withdrawing a stable annual income from the annuities when we hit retirement in a few years and the income will not go down and will last as long as either of us lives. There is a cost for this guarantee, the annuity company charges one percent per year.
We got our annuity statements last month and it showed the interest earned. Then it showed a deduction of $1,050 subtracted from the interest earned and the net amount credited to each policy. Now, I know what that $1,050 is; it is the one percent fee the insurance company charges to guarantee they will keep paying the stable annual income even if cash in the annuity account goes to zero because of the money taken out. Intellectually I get it, but it’s one thing to look at a brochure and talk about one percent fees and five percent income and such and another to see the cold hard cash taken away. Of course we’re keeping the annuities because I understand the purpose of the fee-it’s the insurance cost to protect our lifetime income-but this got me thinking that retirement reality is a whole lot different than retirement imagining.
It’s one thing to read that “a typical couple needs 80 percent of their pre-retirement income to maintain their standard of living in retirement.” It’s a whole nother thing to get out the checkbook and credit card receipts and see what you’re spending your money on today, figure out what you’ll need to spend in retirement, and then try to figure out exactly from where the money will come. Sitting down and creating this budget makes you face retirement reality.
Creating a budget also focused my attention on looking at what happens to the Social Security checks when I die. If I die first my wife loses the lower of the two benefits-and I don’t want her to be financially squeezed. My less than exact solution was to buy a 20 year term life insurance policy on myself. The death proceeds should be enough for my widow to buy a life income annuity that will replace the missing Social Security income (if I die within the next 20 years). This isn’t a topic I’ve seen much written on, it simply occurred to me when I was looking at our Social Security Statements as part of my retirement reality check and asking, “What if?”
A retirement reality I faced that helped me decide to buy the annuities a year ago was knowing that stock markets go down. People all around the world, from the US to Japan to Germany, are told is the grand retirement plan is to buy stocks or (Aktien kaufen) and bonds while we’re working and then sell a certain percentage each year to create income in retirement. People can invest easily by using the best investment app for stocks, and therefore this makes it easier and more efficient for people to invest. We’re supposed to take the same percentage of income out each year, but I knew I’d try very hard to not sell my investments when the market was tumbling. We bought the annuities so we’d have a steady income, regardless of what the market does, and hopefully wouldn’t have to sell investments when the market was down. All of those pretty retirement planning worksheets are just so much paper if you know in your heart that you can’t follow the plan.
In the midst of all this frugalness, my wife and I have taken a larger than originally planned chunk out of our investment mountain and placed it in a money market account. The plan is to use the money to take a river cruise through Europe the first year we retire and an extended Alaskan cruise the next. Another dose of reality is you don’t live forever; we’ve decided to enjoy retirement and let at least a part of tomorrow take care of itself.
