Note: This story is sponsored by The Alliance for Lifetime Income.
Money stress is something that can follow us our entire lives, even into retirement. Reaching certain milestones — like turning 65, leaving the workforce or finally taking Social Security payments — does nothing to decrease our financial worries, and in many cases it can actually make things worse. Since stress is a known trigger for many serious health problems, including anxiety, depression, high blood pressure, heart disease, obesity, and diabetes, it can be a literal killer. Today, money is the second-biggest cause of stress for Americans, and even if we’ve done a good job saving, our unanswered questions about money and risk can be an emotional burden.
Of course no one wants to be plagued by money stress in their golden years. You’ve worked hard your entire life, and this should be a time to enjoy your retirement rather than a time to worry. Thankfully, there are several ways to significantly reduce your financial stress as you approach and enter retirement. Here’s how.
Why Is Stress Particularly Toxic in Retirement?
It all comes down to the increased risks that can threaten (or perhaps destroy) your nest egg, explains Jean Statler, executive director of the Alliance for Lifetime Income, a nonprofit formed and supported by some of the nation’s leading financial services organizations focused on helping educate Americans on the risks of outliving their income. Factors like inflation (particularly rising health care costs) can quickly eat at your savings. In order to keep up, most people put their money in something other than low-interest savings accounts. “This means investing in stocks and bonds, which brings exposure to market risk. This approach is a serious source of stress for retirees no longer receiving a regular paycheck to make up for losses in the market,” Statler says.
But perhaps the greatest risk of all, according to Statler, is our longevity risk—the danger of outliving our retirement money.
Tackling Our Greatest Retirement Risk
Because retirement holds an uncertain future, it’s important to look for flexible financial solutions that create protection, Statler says. For example, many retirees could benefit from a product called an annuity—often referred to as a “guaranteed lifetime income” product. Financial institutions created annuities not only to provide consumers with a reliable income stream, but also to directly confront their increasing fears of longevity risk, she explains. Some annuities allow for a guaranteed minimum dollar amount to be withdrawn each year even if the account balance reaches zero. Because of this financial protection, it’s been shown that annuities can provide a sense of confidence about money in retirement. According to the 2018 Guaranteed Lifetime Income Study, three-quarters of people who own an annuity said it was “highly important” to their financial security.
But what about the cost? While some annuities do come with fees, that doesn’t make them bad products, explains Brent Weiss, Certified Financial Planner (CFP) and co-founder of Facet Wealth, a financial services firm that connects individuals with other CFP Professionals across America. “When you think about retirement, you have three categories of expenses: needs, wants and dreams. Ideally, your needs—including housing, health care and food—will be covered by some sort of fixed income. Most families no longer have pensions, but thankfully we can create our own pension with the right utilization of annuities,” he says.
There are many types of annuity products out there, so it’s important to work with an experienced financial adviser who can help you select one that meets your specific goals. “Look at your entire picture,” Weiss says. “Do you have a gap between your required expenses and what you’ll have coming in from your Social Security and savings? Once you have a handle on that, you can find out what kind of annuity you need to bridge that gap, to give you a stronger foundation.”
At the end of the day, an annuity can hedge against stress simply because it allows you to do more, says Jean Statler, executive director of the Alliance for Lifetime Income.
At the end of the day, an annuity can hedge against stress simply because it allows you to do more, Statler explains. “It provides retirees with the security to take care of themselves and others because they know they will have a protected lifetime income stream, no matter how markets perform or how long they live.”
Shrinking Your Stress
Many retirees worry constantly that they don’t have enough money, Weiss says, when in fact, they simply don’t have a clear definition of what “enough” really is. “It all comes down to awareness and having a handle on the full picture of your assets. This is why access to financial planning is key, because then you can determine if you really should be stressing or not, and what you can do to put your mind to rest.”
Working with a financial adviser has historically been something that’s deemed only for the wealthy, Weiss says, but it shouldn’t be that way anymore. “Probably 90% of families—if you asked them—would say they aren’t wealthy, and I know that 100% of families could benefit from having a relationship with a planner. With financial literacy, you can solve the vast majority of money issues and stress.”
Think about it this way: If you avoid talking about your money, it’s one surefire way to increase your stress and worry in retirement—particularly when it comes to health and financial topics, Statler says. So open those lines of communication today with your spouse, your family or an adviser. Talking openly about your money is the first step toward creating a holistic financial plan that can turn your retirement savings into income. Creating your retirement plan—and protecting your income so you can make it a reality—is the best way to live out your golden years happier, healthier and more stress-free.