The two most important questions you can ask yourself when you begin the process of developing your retirement income plan is the following:
“how much income do I need in retirement to maintain the lifestyle I am accustomed to? and “where is the income going to come from?”
There are various rules of thumb you could go by to figure out how much income you will need at retirement (i.e: 80% of what you made when you were working), but I recommend being more precise for something so important then simply going by a crude rule of thumb.
I believe that everyone needs the following…
4 keys for successful retirement income planning:
1. A Budget That Accounts For Inflation
First, create a budget based on your current expenses. These should include household expenses as well as any other living expenses. Then, with this current budget, your financial adviser should be able to, with your continued input, develop a retirement budget that takes in to account costs that will disappear or be reduced (commuting and children’s’ higher education), others that will appear or increase (travel and healthcare), and adjust for inflation in order to give you a retirement budget that evolves and reflects changes in your income needs as you age.
2. Guaranteed Income That Covers Basic Living Expenses
I have a strong belief that your retirement income plan should guarantee that your basic living expenses will be covered, for life, no matter what happens to the economy or the markets. Now, since we’ve already created a budget that shows costs increasing due to inflation, doesn’t it make sense that our guaranteed income does as well?
A visit to the Social Security Administration’s website should be your starting point for determining how much guaranteed income you can expect in benefits.
The next place to look for guaranteed income is your pension (for the far and few between who still have one), but we’ve all known or have heard of to many people who have lost theirs. However, more often than not, Social Security benefits and pensions aren’t enough to cover living expenses.
This is where annuities can play an important role as the guaranteed lifetime income some annuities provide can bridge the income gap between social security benefits and living expenses and I have developed new and creative strategies using some of the most innovative annuities around to create an annuity portfolio that accounts for inflation and gives you income bumps throughout retirement.
So by first creating a budget and then estimating the income gap between Social Security and your living expenses, you can determine how much you need to put in an annuity to generate the additional guaranteed income needed to cover your basic living expenses.
3. Long Term Care
Now, once you’ve taken care of making sure that your basic living expenses are covered by securing guaranteed lifetime income, you’re well on your way to making sure that you never run out of money in retirement. However, there is one major expense that 50% of us are going to need to address in retirement and that is the cost of long term care.
So, if 50% of people are going to need long term care, most of us don’t have long term care insurance because of its high cost. Thankfully, new insurance products offered by certain annuities and life insurance policies allow you to leverage your existing assets that provide long term care insurance alternatives without the high cost.
4. A Rainy Day Fund
No matter how much you plan and how well you budget, estimates are, by nature, inaccurate. So aside from the obvious and inevitable variance between your expected budget at retirement and reality, unforeseeable expenses due to emergencies, natural disasters, etc… need to be accounted for.
Once you have developed a strategy that addresses these four main objectives, you will have a peace of mind that few people have and you can then use whatever money you have leftover however you like.
Depending on your goals, your risk tolerance, your current taxes, and many other factors, you may choose to put your money in managed money accounts or manage your own investments with the hopes of market growth, or you may decide to add other annuities to your portfolio for added safety and estate planning.
Does your current retirement income provide these assurances? If you’re not 100% certain, schedule a time for us to talk by booking a time on my online calendar.