Learn why planning for retirement income is not the same as retirement planning, and how to prepare for five retirement realities that may affect you.
It’s important to understand that taking income in retirement (distribution) requires a different investment strategy than saving for retirement (accumulation). The table below outlines the key differences:
Accumulation |
Distribution |
---|---|
Emphasis on return |
Emphasis on income and capital preservation |
A focus on creating a personalized investment portfolio |
A focus on creating a personalized total retirement income plan |
Time horizon is defined, yet adjustable |
Time horizon unknowable and not adjustable |
Impact of market declines is more manageable |
Impact of market declines is less manageable |
Inflation managed by wage growth |
Inflation managed through investment choices |
Learn about the five retirement realities and ways that you can work with your financial professional to reduce their impacts:
Perhaps more than any other factor, longevity has changed the very concept of retirement. People are living longer than ever thanks to advances in science, medicine and healthier lifestyles. This is great news, but longer lifespans mean we must also plan — and save — for extended time horizons.
Calculations based on the 2022 Alternative 2 mortality probabilities from the Social Security Administration website, ssa.gov.
During your working years, there may be enough time to recover from market downturns, but the story changes when you enter retirement, particularly if a series of poor results occurs early on in the distribution phase.
Market volatility over the past 20 years
S&P 500 Index is a measure of 500 commonly held large U.S. stocks. Results for the S&P 500 Index assume reinvestment of all distributions. Results do not reflect sales charges. Past results are not predictive of results in future periods.
Source: S&P 500
Each S&P Index ("Index") shown is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2022 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part is prohibited without written permission of S&P Dow Jones Indices LLC.
You can see the effects of inflation in your everyday life. For example, the average cost of a gallon of gas was $1.21 in 1991. In 2022, it was $5.15. Imagine how much it will cost 30 years from now.
The effects of inflation over 30 years
Source: U.S. Bureau of Labor Statistics, Consumer Price Index — Average Price Data, June 1991 and June 2022
Worrying about money is not how you want to spend your retirement; therefore, it’s important to consider how much you’ll have to spend on a monthly or annual basis to understand what it will be like to live within your means.
Average annual expenditures by age group
Source: U.S. Bureau of Labor Statistics, Consumer Expenditure Survey, September 2021
Although total consumption generally decreases in retirement, keep in mind:
The rising cost of health care is “the most significant threat to the long-term economic security of workers and retirees,” according to the Social Security Advisory Board.
Rising health care costs in a typical retirement
Source: U.S. Bureau of Labor Statistics, Consumer Expenditure Survey, September 2022
Multiple perspectives come together to inspire better results.
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Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.
There may have been periods when the results lagged the index(es). The indexes are unmanaged and, therefore, have no expenses. Investors cannot invest directly in an index.
Each S&P Index ("Index") shown is a product of S&P Dow Jones Indices LLC and/or its affiliates and has been licensed for use by Capital Group. Copyright © 2023 S&P Dow Jones Indices LLC, a division of S&P Global, and/or its affiliates. All rights reserved. Redistribution or reproduction in whole or in part is prohibited without written permission of S&P Dow Jones Indices LLC.
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