Strategies to prevent outliving your money

According to the Social Security Administration, if you are 65 you have a 25 percent chance of living to age 90 and a 10 percent chance of living to age 95. This means, not only do you need to have enough income to provide for your desired lifestyle at your retirement age, but that income needs to increase due to the certainty of inflation and the probability of eventual long-term care costs.

There are several strategies to increase the probability of financial success in the event you or your spouse have a long life. One option is to delay retirement and work longer than originally planned. It may not be the ideal solution, but it will allow your assets to continue to grow because you will not only delay withdrawals but you might also be able to add additional contributions.
Alternatively, it might make sense to delay turning on social security; each year you wait you get an 8 percent increase in your future lifetime income, which will be periodically adjusted for inflation.

Additionally, in order to keep up with or exceed inflation, there should be a growth component to your investment plan. Ideally, there should be some exposure to stocks or other assets such as real estate that have historically acted as an excellent hedge against inflation.

For those who are more conservative, uncapped equity linked index annuities can also provide inflation protection without the risk of stock market investments.

In addition to inflation, retirees need to plan for potential contingencies such as long-term care. With the average semi-private nursing home costing $95,000 per year and the average skilled home care costing about $45,000 per year* many people are simply unprepared to deal with these costs. One way or another, these potential costs need to be addressed in your plan either by self-insuring and spending down assets or passing the risk to an insurance company through a traditional or hybrid long-term care policy.

*Genworth