Have Enough: Top 7 Strategies for Generating Adequate Retirement Income

Retirement Income

Generating enough retirement income is a top concern for many Americans.

In fact, the number of Baby Boomers who are confident in their efforts to prepare financially for retirement has dropped nine percentage points, from 44% in 2011 to 35% in 2014, according to the Insured Retirement Institute’s fourth annual report on retirement preparedness of the boomer generation.

And some Americans even fear running out of money in retirement more than they fear death, a 2010 Allianz Life Insurance Company of North America Reclaiming the Future study finds.

  • Sixty-one percent of all respondents said they were more scared of outliving their assets than they were of dying.
  • That number climbed to 77% for those aged 44 to 49.
  • And, rose even higher to 82% for those in their late 40s who had dependents, the study finds.

But you don’t have to fear retirement if you plan ahead, financial experts agree. Consider these six strategies to ensure you have enough retirement income throughout your golden years.

1. Know Exactly What You Have and What You Need

The first step for almost anything is to take stock of what you have and what you need.  This is true of retirement income planning as well.

Assessing your current resources and understanding what you need for retirement is critically important.  You can do this on your own, but working with a financial advisor or using a sophisticated retirement calculator can make the process a lot easier.

2. Diversify your portfolio with a focus on retirement income

“I highly recommend that investors use mutual funds instead of individual stocks, because this allows them to stay diversified with their investments,” says Great Falls, Mont.-based Alan Moore, co-founder of XY Planning Network and founder of Serenity Financial Consulting.

Advisors of all ages and channels see mutual funds as important retirement planning tools.

On average, 94% of advisors in a survey conducted by WealthManagament.com listed them as recommended products—more so than any other option.

But what are mutual funds?

A mutual fund is an investment program funded by shareholders that trades in diversified holdings and is professionally managed.

“I prefer mutual funds because they are typically one of the best ways to get access to a diversified portfolio at a low cost,” says PJ Wallin, founder and lead advisor at Atlas Financial in Richmond, Va. “Meaning, if I had $1,000 to invest, then I could probably only go out and buy a handful of company’s shares in the S&P 500, whereas with an S&P 500 mutual fund I can buy the entire index of companies, thereby reducing my overall risk.”

The S&P 500, or the Standard & Poor’s 500, is an American stock market index based on the market capitalizations of 500 large companies having common stock listed on the NYSE or NASDAQ.

3. Take a detailed look at your expenses and plan your retirement income accordingly

Robert Merton is a Nobel Prize winning economist who studies retirement income strategies.

Merton suggests looking at your projected retirement income and thinking about it as three different categories:

  • Your must have retirement income
  • Your nice to have retirement income
  • Your desired luxury retirement income.

Investments for each category of retirement income would vary.  You would want conservative investments for your must haves, some risk for your nice to haves and more risk for your luxury category.  You can learn more about this strategy: 3 Steps to a Retirement Income Plan or talk with a financial advisor about working this out with you.

4. Delay Social Security

People continue to live longer than they expect, and the one source of guaranteed income Americans have is Social Security.

If you have reached normal retirement age, which is 66 for people who were born between 1943 and 1959, you can access 100% of your Social Security benefits.

For each year after that, up to age 70, your benefits increase 8%, meaning you can access 32% more at age 70 than at age 66.

If those benefits are tapped at younger than normal retirement age, they will be reduced based on the number of months you receive benefits before you reach your full retirement age. For example, if your full retirement age is 66, the reduction of your benefits at age 62 is 25%; at age 63, it is about 20%; at age 64, it is about 13.3%; and at age 65, it is about 6.7%, according to data from the Social Security Administration.

You might find it useful to calculate your Social Security break even age.

5. Plan for retirement income ‘early and often’

There aren’t any “magic products” for those who leave retirement planning to chance, Wallin says.

“Understand this as early in life as possible: You are your own retirement savings,” he says.  “Save early and often.”

A key component of saving early is saving smart — and that means working with a financial advisor or using a retirement calculator.

Baby Boomers working with a financial advisor are more likely to have savings for retirement and are more likely to have set a retirement savings goal, according to the Insured Retirement Institute (IRI) “Boomer Expectations for Retirement 2014” report.

In fact, the percentage of Boomers working with a financial advisor who are highly confident  in having sufficient savings to live comfortably throughout their retirement years is more than twice that of Boomers who are planning for retirement on their own, IRI data show.

6. Take on a part-time job

While it’s ideal to start saving as early as possible, there are ways to generate additional revenue streams in retirement that don’t require too much advance planning, such as working at a part-time job.

“Finding ways to have part-time income in retirement is the best thing folks can do when they have waited too late to save,” Moore says. “Building in an extra $1,000 per month of retirement income is going to be the difference between a secure retirement, and working for many more years.”

In fact, 17% of boomers say retirement financing will come from continued employment, according to a 2014 analysis of data from a survey by Merrill Lynch. And more than seven in 10 pre-retirees say they want to work in retirement, Merrill Lynch data find.

“In the near future, it will be increasingly unusual for retirees not to work,” Merrill Lynch predicts, noting re-visioning of later life and increased life expectancy as contributing factors.

Ultimately, when considering any strategy it’s best to speak with a financial advisor who is knowledgeable about retirement planning to create a savings plan in your best interest.  Learn more about retirement jobs.

7. Have You Considered  Tapping Home Equity

Home equity is the money you have saved in your house.  You can access this money for retirement by downsizing, getting a home equity loan or through a reverse mortgage.  You might want to explore 5 Ways to Cut Housing Expenses in Retirement.

NewRetirement Planner

Do it yourself retirement planning: easy, comprehensive, reliable

NewRetirement Planner

Take financial wellness into your own hands and do it yourself retirement planning: easy, comprehensive, reliable.

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