Record numbers of Americans are retiring. According to the U.S. Census Bureau, there will be over 80 million retirees by 2040. Life expectancies are on the rise – people are living longer. And a large proportion of Americans worry about market risk. They get anxious over how the stock market performs or fear potential losses.
Because of these and other reasons, some Americans have been adopting annuities as transfer-of-risk strategies. They want the guarantees associated with these contracts – particularly the assurance of lifelong income, for many annuity buyers. For those of us worried about outliving our money or other income-related risks in retirement, this raises an important question: “Should an annuity be part of my income strategy?”
It’s indisputable that many Americans desire guarantees in their financial plan, and this number continues to grow. But that doesn’t mean annuities are right for everybody. If you are wondering whether an annuity is for you, here’s a quick look at some situations you may want to consider. Read More
Why is Income More Important than Assets in Retirement Planning?
This question is crucial for retirees. After all, retirement can last for 30 years or more, and mistakes can lead to significant financial complications.
In previous discussions, we’ve highlighted how income planning differs from investment planning, particularly with its emphasis on generating monthly income. Unlike the working years, when accumulating assets and replenishing them with employment income is possible, retirement is a phase of “distribution,” where we rely on our nest egg for income. Seniors don’t have the luxury of replenishing their savings through employment. For this reason, among others, focusing on retirement income is paramount.
Here’s why income should take precedence over assets in retirement planning and why this approach might benefit your planning strategy.
1. Income Ensures a More Efficient Planning Framework
Income, as it pertains to cash flow, allows for more efficient financial planning. While income is a well-understood component of retirement finances, cash flow management is equally crucial. Cash flow management involves using income streams to cover retirement expenses. This includes:
Diverse Income Sources: Retirement plan distributions, Social Security benefits, guaranteed pension payments, annuity payouts, and part-time employment income.
Income Timing: Effectively managing when money is received from various income sources and using it to pay bills and expenses punctually.
Expense Management: Ensuring adequate funds for various retirement expenses, including fixed monthly costs, discretionary spending like vacations, and unexpected emergencies.
By relating income to expenses, focusing on monthly income can enhance planning efficiency. Nobel laureate Robert C. Merton points out that in the current retirement planning landscape, where many depend on 401(k)s and other defined-contribution plans, decision-making is often influenced by behavioral biases. Read More
There are many decision-points leading up to retirement. Much of this process relates to financial planning. Should we wish to maintain a comfortable lifestyle, we must have sufficient income to support it. An effective retirement plan will lay out not only income goals we need to achieve, but also personalized strategies to sustain income security.
In earlier years, many of us focused on investment strategies to build up wealth. You may have worked with a financial advisor to find investments or investment packages with solid return potential over time. Or you may have engaged in investment planning yourself. However, retirement brings change, and this includes a shift in financial planning focus – an emphasis on planning for income.
Here’s a quick look at how income planning is different from investment planning – and why you may want to incorporate an income-focused retirement planning approach. Read More
Is your retirement income plan well-suited to your financial needs and goals? Whether you’re creating a personalized strategy or examining one, it’s an important question to consider. After all, any income gaps or shortfalls could lead to real financial setbacks.
With that said, here are some markers you can use to evaluate your income strategy. Read More
As we approach retirement, we face many decisions. Many of these decision-points revolve around future financial life. Retirement income planning – or creating a plan to cover expenses and retirement uncertainty – is an essential step.
But everyone has different income needs, and they vary in their readiness for retirement. Plus today’s retirement landscape is far different than what our parents and grandparents dealt with. In the past, a steady pension from an employer, dependable income from Social Security, and a small fund of retirement savings was standard fare. Now those days are largely a distant memory for most Americans. Read More
Finances continue to be a top retirement concern, as surveys show. In a recent study by the American Institute of CPAs, 57% of CPA financial planners reported their clients’ foremost retirement concern was “running out of money.” When asked what the sources of this client stress were, 76% of the financial planners said healthcare costs. Other causes of financial stress were lifestyle expenses (52%) and unanticipated costs in retirement (47%).
Given these concerns, it’s critical to ensure we’re ready for monthly income needs in retirement. But there are a number of retirement expenses which can give us the slip. Some costs are hard to project, such as healthcare costs. Then there are life changes which can completely transform a retirement budget, such as doting on grandchildren.
Here’s a look at some retirement costs to keep in mind – and to help you avoid the financial shock of unexpected or harder-to-predict areas of retirement spending. Read More
Through careful deliberation, many Americans have figured out their retirement planning requirements. But a comfortable retirement needs more than just creation of a financial strategy. It also means sticking to the plan you have developed.
Of course, there are some events beyond our control, events which can disrupt a retirement plan. Stock market downturns, costly unforeseen situations, and medical emergencies are a handful of such occurrences. There are some ways to mitigate the effects of these situations, but there are other mistakes which can prove detrimental to retirement security.
Here’s a look at some pitfalls which can put a retirement plan on the line – and which we recommend you take measures to avoid. Read More
It’s not unusual for retirees to have multiple sources of income. According to the Social Security Administration, people age 65 and older receive a majority of their income from four sources. These source-points cover a wide range of income needs, from monthly living costs to healthcare spending and other retirement expenses.
If you’re in or near the “retirement red zone” (a period of 10 years before retirement and the first 10 years in retirement), now is a critical time. Decisions made now – and decisions which are neglected – will have a significant impact on the rest of a retirement lifetime, no matter how long it lasts. It’s a stage at which to figure out how you will pay for all of your retirement years.
With that said, here’s a look at how people age 65 and older are paying for retirement, and some ways to maximize retirement income. Read More
Do you have a dependable level of income for retirement? According to a new study, many seniors aren’t generating the retirement income they need. BankRate.com reports seniors in 47 states and the District of Columbia aren’t replacing enough of the income they earned in their working years.
The study found that at best, seniors are living off 60% of the income they had in their pre-retirement years. Financial experts believe retirees need at least 70% of their pre-retirement income. BankRate.com reports the national average to be 60.27%. Read More
You’ve worked hard for many years. Upon retirement, most people would like to live on their own terms. Maintaining a comfortable lifestyle requires you to take the proper steps to secure it. That includes avoiding common errors which could put your retirement finances at jeopardy.
With precautions in order, retirees will be more prepared to enjoy a secure – and hopefully financially confident – future. Having said that, let’s cover a few pitfalls which could do a number on your financial security. Read More
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