Start by estimating your remaining life span. Err on the side of caution by assuming you are going to live a long time. Once you reach the age of 65, you can reasonably expect to live to close to 90. However, you might want to lengthen or shorten that timespan depending on your personal circumstances of health and genetics.
How long you are going to live, also known as longevity risk, is fundamental in Lifetime's retirement income solutions.
Lifetime offer three types of Life Expectancies:
- Shorter Life Expectancy – Higher income, designed for those who aren’t expecting to live into their 90s
- Average Life Expectancy – Moderate income, designed for those who expect to live part way through their 90s.
- Longer Life Expectancy – Lower income, designed for those who are expecting to live into their late 90s.
Head to the Lifetime Income Projection to Calculate your income.
Once you have decided how long you want your money to last, it is then important to deal with your day to day expenses. Doing a budget and understanding how much you require each fortnight for the bills and having an retirement income strategy, like found with Lifetime, is an important step.
Once you have dealt with your Income, it is time to deal with your lifestyle spending, such as trips, cars and doing up the house.
To do this, divide this time into blocks. The first block to consider is the period when you want to live it up while your health and energy are still good. Maybe you want to cram all your live-it-up activities into the first five years when there is more certainty around health and energy. On the other hand, if you are confident about your health future, you might want to live it up for ten years.
Now consider the period of time after your live-it-up stage. If it’s more than ten years, break it into two time periods.
Next, allocate your available investment money (after removing your allocation for retirement income) to each of the blocks of time. Start with the block of time closest to the end of your life span. In this stage, your outgoings are likely to be focused on health needs and living arrangements – that is, living in a retirement village, rest home, or your own home with perhaps some paid assistance. This stage is more about living comfortably and maintaining health rather than living it up. Think about how much of your retirement nest egg you might want to allocate to this period of time.
Now work backwards in time. If you have three blocks of time, what might you be doing in the middle block? Perhaps some local travel? This is a period when social activities are usually significant. You may choose to belong to various groups based on hobbies, sports, and interests. You might have some health needs in this time frame, and you might also need to spend money on home maintenance and replacing your car. How much of your retirement nest egg would you want to allocate to this period?