Will My Retirement Savings Last?

3 obstacles to your retirement income plan

For those just starting to save, and even for those who've been diligently socking away money for years, a common question lingers: "How much do I really need for retirement?" It's a crucial question, and forming a solid retirement savings strategy hinges on finding the answer. It might seem straightforward, but for Americans in 2025, answering this question is getting increasingly complex. We're facing a perfect storm of rising life expectancies, dwindling pension options, and a volatile financial landscape, all of which can seriously impact your retirement plan. And even once you enter retirement, a whole host of factors can affect how long your hard-earned savings will actually last.

Here are some critical areas to consider when calculating how long your retirement nest egg will support you:

1. Long-Term Care (LTC): The Often-Overlooked Expense

Long-term care is a massive aspect of retirement that, unfortunately, many people simply don't factor into their plans.

According to Genworth's 2024 Cost of Care Survey the national median annual cost for a semi-private room in a nursing home in the US is around $104,000 and will likely be greater in 2025. Even more concerning, many sources project that a significant majority of people reaching retirement age will require some form of long-term care during their later years. While this doesn't guarantee you'll need extensive care, it strongly suggests you should prepare for the possibility of needing it. 

There are many options to explore regarding long-term care planning. A financial advisor can guide you through these options, helping you craft a plan that fits your specific circumstances and risk tolerance. These options may include traditional long-term care insurance, hybrid life insurance policies with LTC riders, or self-funding strategies.

 2. Taxes: The Inevitable Bite

Like most people, you might be tempted to defer taxes and reduce your taxable income as much as possible now. Whether you're using a 401(k), 403(b), or other tax-deferred accounts, remember that those taxes will eventually come due.

The IRS currently requires you to start taking required minimum distributions (RMDs) from most retirement accounts, starting the year you turn 73. Many retirees fail to adequately plan for these deferred tax liabilities, which can take a surprisingly large chunk out of their savings.

Some potential solutions to consider, in consultation with a financial professional, are as follows:

• Roth IRA/Roth 401(k): These accounts are funded with after-tax dollars, meaning qualified withdrawals in retirement are tax-free. Roth IRAs also have no RMD requirements, allowing your money to continue growing tax-free, even if you don't need to withdraw it. While contribution limits may pose a challenge for high earners, Roth accounts offer significant long-term tax advantages. There are also income limits for contributing directly to a Roth IRA, but anyone can contribute to a Roth 401(k) if their employer offers it.
• Roth Conversion: This strategy allows you to convert funds from traditional tax-deferred accounts to a Roth IRA, paying taxes on the converted amount now instead of later. This can be a smart move if you anticipate being in a higher tax bracket in retirement. Notably, there are no income limits for Roth conversions. It is important to keep in mind that this will increase your taxable income in the year of conversion, so this should be carefully planned out with a tax professional.
• Life Insurance Retirement Plan (LIRP): While it is important to consult with a professional and not take this as an endorsement, properly structured permanent life insurance policies can offer a source of tax-advantaged income in retirement. LIRPs can have high fees and complexities that must be addressed prior to implementation.

It's crucial to thoroughly understand the nuances of each of these options and consult with a qualified financial advisor before making any decisions. They can provide personalized guidance and help you determine the best strategies for your situation.

3. Market Downturns: The Unpredictable Rollercoaster

One constant in the investing world is volatility: the market will inevitably go up and down. Anyone investing for retirement knows that downturns are an inherent risk. To effectively plan your retirement savings strategy, you need to carefully assess your risk tolerance and acknowledge that market fluctuations will continue evenafter you retire. Building a retirement income plan is distinct from accumulating wealth; it requires a separate and tailored approach to manage risk and ensure a steady income stream. Consider diversifying your portfolio, exploring income-generating assets, and potentially incorporating strategies that provide downside protection, such as certain types of annuities or buffered ETFs.

The Bottom Line

These factors are vital to consider and plan for to guard against a financial shortfall in retirement. If you haven't already, schedule a meeting with an experienced financial professional. They can help you analyze your current situation, discuss your retirement goals, and develop a personalized plan tailored to your individual needs and aspirations. Don't leave your retirement to chance – take proactive steps today to secure your financial future. 

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The views and opinions expressed herein are those of the author(s) noted and may or may not represent the views of The Lincoln Investment Companies. The material presented is provided for informational purposes only. There is no guarantee that any strategies discussed will result in a positive outcome. None of the information in this document should be considered as tax advice. You should discuss any legal, tax or financial matters with the appropriate professional regarding your individual situation.