School is back in session, and kids are back in the classroom, but they shouldn’t be the only ones getting an education right now. It’s time for parents and grandparents to brush up on their retirement plans. Why? When it comes to retirement, most people do not have a realistic idea about how much money they’ll need. They don’t know their options for guaranteed income, and they don’t know enough about the factors to consider when creating a financial plan.

How much money do you need in retirement?

The answer will be different for everyone, depending on the lifestyle they want to live in their golden years. However, there are some uncontrollable factors in retirement that everyone needs to consider. These factors can change any predetermined number you’ve had your mind set on for retirement. I can’t give you “the” magic number, but you can create a plan for retirement after considering things such as longevity, market risk, and behavioral finance.

Longevity risk is outliving your money. I recently heard that the first person to live to 130 has already been born, so that means there’s someone out there who may have 65 years to live in retirement. That’s a long time! But even if you don’t get 65 years in retirement, you could easily get 30 or 40 years. And in those decades, inflation, healthcare costs, and other living expenses will likely go up. So what does this mean for you and your savings? When figuring out how much money you need in retirement, you have to account for living longer.

Market risk and behavioral finance are additional factors individuals must also take into consideration. Market risk is how the broad stock market performs, and it’s significant today because the S&P has doubled over the past five years, and there has not been much volatility. Behavioral finance is the study of how investors react when markets change, and studies show the end investor consistently does the wrong thing at the wrong time (sells low and buys in high after a rally is well underway). During the beginning of COVID-19, investors were panicked as the market plummeted from mid-February to May of last year. But by the time the market had rallied and covered the losses, most people were not fully invested back into equities. They made a conscious decision to get out because of the behavioral finance factor of fear.

Guaranteed income in retirement

What can you do about these uncontrollable factors in retirement? There are ways to mitigate the risks, and having a guaranteed income solution is a great option. These options essentially provide you with a paycheck for life. Guaranteed income comes in one of two forms: retail annuities and 401 (k) in-plan solutions. For a retail annuity, an investor needs to establish a relationship with a financial advisor and perform due diligence on the many different options available. Or, you can ask your company to add guaranteed income as an option in your 401 (k) plan.

We created Income America’s 5ForLife to provide a simple retirement income solution for plan participants. It provides retirees with five percent of the participant’s income base for life every month. There is then comfort when considering longevity and market risks because it doesn’t matter how long you live or what the market does; you will have a guaranteed paycheck for life! The Income America 5forLife solution is much different from other strategies because there is full liquidity at all times. There is no penalty if you need to withdraw cash for a life event like significant health care costs or buy a new car or home.

Participants want guaranteed options in their 401(k), but the fact of the matter is, most plans do not yet offer guaranteed income solutions. It makes sense for employers to provide them because participants will keep their money in the plan if they do, and the more money in the plan, the lower they can drive the fees. The plan participants also have considerable benefits, as a fiduciary will watch over the plan and provide institutional pricing.

Is your financial advisor a fiduciary?

Please ask them! Learning more about your plan for retirement from a financial standpoint is essential, but so is learning about who manages your retirement accounts. Is your financial advisor a fiduciary? A fiduciary is required to buy and sell investments that are in your best interest, not just those that are “suitable” for you.

The amount of money you need to save for retirement is different for everyone. Getting a retirement re-education is more critical now than ever, and you can be better prepared for uncontrollable factors like market risk, longevity risk, and behavioral finance mistakes. Get Income America 5forLife!