Retirement Income Planning is Not Out of Reach
Eighty-four percent of Americans say having a guarantee of monthly income for the rest of their lives is important to them, yet nearly half (44%) are unsure if their current retirement plan offers them the option of receiving a monthly paycheck in retirement, a new study shows.
In addition, having guaranteed money every month to cover living costs in retirement is of growing importance to Americans, with that number jumping from 34% in 2014 to 48% in 2015, according to the 2015 TIAA-CREF Lifetime Income Survey.
Here are some tips for retirement income planning:
First Step — Set A Goal — How to Calculate Your Retirement Income Needs
“Although experts recommend planning to replace 70% to 90% of pre-retirement income, only one-third of Americans think they will need to replace more than 75% of pre-retirement
income,” says TIAA-CREF in the report, noting that many Americans need help setting and achieving retirement goals.
Most alarming is the number of Americans who are saving nothing at all for retirement — increasing to 29% in 2015 from 21% in 2014, according to the TIAA-CREF survey.
“With interest rates near historic lows, generating $100,000 of income from any type of guaranteed product requires a very high asset base,” says Spencer Hall, managing partner of Knoxville, Tenn.-based Retirement Planning Services, LLC. “Instead, we would favor an integrated approach where an investor takes distributions in light of his/her overall financial plan while focusing on rebalancing and maintaining a diversified portfolio.”
Doing the appropriate financial planning as soon as possible is critical, he says, noting that while some clients might overestimate their financial position, others find that they are in better financial shape than they think.
“Sometimes clients have a lot of anxiety when they walk through the door,” he says. “They don’t know what to expect. Being able to sit down with a financial planner helps them to see all their options, and relieve that anxiety.”
If you’re feeling unsure about your retirement savings, the TIAA-CREF study found that access to financial advice can boost confidence in lifetime income options. Yet, only 31% of Americans have sought advice on how to translate their retirement savings into lifetime income.
“Financial advice and education can help individuals meet their need for retirement income that they can’t outlive,” TIAA-CREF says in the report.
Consider Annuities — Money You Can’t Outlive– a Good Strategy for Retirement Income Planning
While the majority of Americans agree that it is important to have have guaranteed monthly income in retirement, only 14% have actually purchased an annuity, which is one of the only ways to ensure income that retirees can’t outlive.
An annuity, or insurance product that pays out income, allows you to make an investment in the annuity and then makes payments to you — giving you a dependable income stream during retirement.
There are many different types of annuities. The two main types of annuities are fixed and variable.
Fixed: Fixed annuities guarantee a certain base of income per month. The amount of income you receive every month from a fixed annuity is exactly the same no matter what.
Variable: The amount of income you receive from a variable annuity depends on underlying investments. So if the investments behind the annuity are doing well one month, you would receive more money that month than you would when the investments behind the annuity are doing poorly.
Because a variable annuity allows you to receive periodic payments, offers the death benefit, and is tax-deferred, it has become a popular product, according to the U.S. Securities and Exchange Commission (SEC). The death benefit protects consumers, the SEC says.
If you die before the insurer has started making payments to you, your beneficiary is guaranteed to receive a specified amount – typically at least the amount of your purchase payments, says the SEC. Your beneficiary will get a benefit from this feature if, at the time of your death, your account value is less than the guaranteed amount.
For example, “You own a variable annuity that offers a death benefit equal to the greater of account value or total purchase payments minus withdrawals,” explains the SEC. “You have made purchase payments totaling $50,000. In addition, you have withdrawn $5,000 from your account. Because of these withdrawals and investment losses, your account value is currently $40,000. If you die, your designated beneficiary will receive $45,000 (the $50,000 in purchase payments you put in minus $5,000 in withdrawals).”
In addition, some variable annuities allow you to choose a “stepped-up” death benefit. Under this feature, your guaranteed minimum death benefit may be based on a greater amount than purchase payments minus withdrawals.
Ultimately, meeting with a financial advisor can help to ensure you have a guaranteed revenue stream in retirement.
Think Carefully About When to Start Social Security – It is Guaranteed Retirement Income!
Social Security is retirement income that is guaranteed to be there for as long as you live — no matter how long that turns out to be.
The longer you wait to start Social Security, the higher your monthly payments will be. In many cases it makes sense to wait and really boost your monthly retirement income.
Understand Your Investment Strategy for Retirement Income
Some investments are better for retirement income than others. However, there are numerous investment philosophies and strategies. If you are not yourself a financial planner, it can be stressful knowing what to do.
Do you take risk so your money grows? Do you invest conservatively so that your principle is unlikely to be lost? Some combination there of?
