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How Coronavirus Could Upend Your Retirement

By May 21, 2020July 15th, 2020Insurance

Covid-19 has impacted people in so many ways. There are the human toll and job losses as well as the disruption to people’s lives, particularly front-line workers. As a result, interest rates have plunged; good news, if you can refinance your mortgage or, are looking to buy a home. But for savers, especially retirees who typically rely on more conservative investments like CDs and other interest-bearing accounts, you’re getting the proverbial slap in the face.

And that’s on top of the other challenges that retirees uniquely face. While the overall inflation rate is around 2%, the Labor Department data provided below indicate that health care costs, along with housing costs, constitute almost half (48%) of the spending by retirees age 75 and over. And those costs are rising much more quickly, as you can see! This means that many retirees, especially from age 65 forward, will have negative net savings return after taking inflation into account. Not to mention that Social Security’s cost-of-living adjustment for 2020 was only a 1.6% increase. And for 2021, there may not be an increase.

 

So, what is the solution? Aside from some sort of direct government relief plan, the best available avenue right now to leverage your “mortality credits” through the use of an immediate lifetime annuity or a deferred income annuity. For example, a 70-year male could purchase an annuity for $100,000 today that pays him $574 a year for the rest of his lifetime. It may not sound like a lot, but it could well be a better approach for some portion of retirement savings versus receiving diminishing interest payments and potentially losing your principal. The real goal is avoiding the likelihood of a “reverse legacy” – needing your family members to support you financially.

In fact, the specter of prolonged ultra-low interest rates means there are some 50 million Americans age 65 and up that will be challenged to maintain their current standard of living. That lack of spending ability will have dampening effects on our economy for years to come, further weighing down interest rates. The coronavirus pandemic will result in a larger burden on retirees and a more urgent need for guaranteed income in retirement.

Remember—I can show you how to secure that.

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