Retirement Income Planning Strategies – A Quick Guide

Early on, your retirement planning was probably focused on accumulating savings and growing your money. You aimed to invest and to enjoy solid returns for your money, perhaps with an advisor’s help.

However, things change as we get closer to retirement. Now, it’s more important to protect the money you have put away over the years. And once you retire, you will use this nest egg to replace the income stream you received during your career. Whether it was from a job, entrepreneurship, or other programs, that income source will change in some way.

A well-thought-out retirement income planning strategy can make a difference in helping you enjoy a comfortable lifestyle. This quick and in-depth guide will lay the groundwork for helping you create an effective income plan.

Keep these retirement income planning tips in mind as you start planning for how you will have financial security for many years ahead. Here are a few things to know and do in order to increase your chances of a secure, fulfilling retirement.

1. Know your retirement spending numbers.

The first step in any financial plan is to figure out what your expenses will be. Retirement planning is no different.

When you map out your expenses, it’s good to start with the essentials, or your ongoing monthly living expenses. Housing, utilities, groceries & eating out, entertainment, transportation, personal care, and insurance are just a few categories of this monthly spending that you can cover.

Be sure to include all of the little things that will be there. Those can include Netflix or other streaming content memberships, the spiced latte that you always get on Saturdays, and the money you give to your local church.

You should also get a clear idea of what kind of medical expenses you will have, especially in your later years. That includes the possible need for long-term care of any sort. Your personal medical history and family history can be helpful in determining these.

If you will need to get a Medicare supplemental plan, then find out about what it will cost when the time comes for you to buy one.

Your financial professional can walk you through your options and anything else you might need to know for insurance coverage.

2. Develop a systematic long-term withdrawal strategy.

At some point, you might have heard of the traditional 4% withdrawal rule for how much that retirees should take from their accounts. But market and economic conditions are very different from when the rule was created. In fact, they still are even from during those decades that followed then.

This rule of thumb suggests that in year 1 of your retirement, you take out 4% of your retirement money. Then you would continue doing this for each year following while accounting for inflation.

So if you had $500,000 in an IRA, you would withdraw $20,000 in the first year of your retirement. Say that inflation clocked in at 3%. In the second year, then, you would take out $20,600 to account for the bump-up.

Since interest rates are very low and markets have been volatile, the 4% rule may no longer apply well for many situations. It also doesn’t include changes in spending or heavy changes in retirement income.

By working with your financial professional, you may be able to come up with a flexible strategy that adjusts to changes in how your investments do, any lifestyle changes, or other changing situations that are deemed relevant.

One way to create a floor of income that is unchanging, particularly for your monthly living expenses, is by using an annuity that pays you ongoing guaranteed income. Between that and Social Security, this can be a good way to ensure that your base expenses are covered.

If you would like a second career after you retire, then you may not need to start drawing from your retirement plan until your later years. Should you plan on working until you are at least 70, then delaying Social Security can give your benefit more time to accrue.

3. Cover income gaps with guaranteed income sources.

After you have accounted for your expected spending and income, compare them. Do you see any gaps between your expenses and income streams?

If so, it’s prudent to look at ways that you can cover them. Social Security and pension payouts are two sources of predictable income that you can count on, month after month.

What if you still have an income gap? Another strategy that is growing in popularity is using annuities to close it. You can think of annuities as a kind of self-funded pension plan, where you are guaranteed to receive monthly income for as long as you live.

This is true even if you deplete all of the money inside your contract. Annuities are the only type of financial vehicle on the planet that has this feature of guaranteed income. Your financial professional can discuss with you the pros and cons of this approach.

4. Include survivorship planning.

If you have a spouse or partner, make sure to plan for survivorship situations in your retirement income planning. You want to be sure that when something happens, the surviving spouse has the financial resources to live off accordingly.

Check all of the beneficiary designations on all accounts, life insurance policies, investments, annuities, and so on. This will help the surviving partner with access to this money when they need it. Your financial professional can guide you on how to make sure everything is correct.

Should you buy an annuity or life insurance, you should also mind how it might affect survivorship situations as well. Whether a spouse is named as a joint owner or a beneficiary on a policy can have implications for taxes and continuing payments after someone has passed.

Ask your financial professional about the benefits and downsides of the joint owner or beneficiary options. The end goal is to ensure that your spouse or partner will continue to receive payments or coverage after you are gone – and vice-versa.

5. Plan for a long retirement.

In your retirement income planning, be sure to account for a potentially long time in retirement.

Consider the health and longevity of your parents and grandparents. Your own medical history will also be a valuable clue-in. If you have a family history of people living into their 90s or beyond, then it’s wise to incorporate that fact into your spending plan.

All of that being said, planning for financial resources into your 90s is prudent, in general. Why? Because it helps you prepare for and be flexible for the long term.

More people are living into elder age than in decades before. What’s more, recent studies have scientists predicting that people will live well into their 100s in the future.

6. Make a long-term tax strategy for your retirement income planning.

Talk to your financial advisor about what you can do to minimize your tax bill during your retirement. There are many kinds of taxes that you might face over your golden years.

Income taxes, capital gains taxes, Medicare surtaxes, Social Security taxes, gifting tax, and alternative minimum tax are a few that might make their way onto your tax bill.

In one study, high-income households said that taxes were one of their greatest expenses in retirement. Another survey found that nearly four in 10 retirees were unaware of how much taxes could impact their retirement income.

At a high level, your retirement assets will have three kinds of tax classification:

  • Tax-deferred accounts
  • Non-qualified accounts
  • Tax-free accounts

Tax-deferred assets are where taxes are due on your money when you withdraw it. The money grows tax-deferred, meaning your principal and earnings aren’t taxed until they are taken from the account.

Non-qualified accounts are usually started with after-tax money. In that case, taxes have already been paid on the principal that you put into the account, but the growth will be taxable when it’s withdrawn. Your financial professional can discuss this in more detail.

On the other hand, tax-free assets are truly tax-free. An example of this is a Roth IRA or a Roth 401(k). The money put into the account has already been taxed. But the benefit is that on the backend, withdrawals are tax-free so long as you meet certain conditions.

Your financial professional can answer your questions about these different classifications and what they mean for you.

7. Understand your Social Security benefits.

Do you plan to work until you are at least 70? Then it might be worthwhile to hold off on claiming Social Security benefits until then.

This is the maximum age until which you can delay your benefit and let it accrue. Those who do this can see their Social Security benefit increase by roughly another 32%.

But if you don’t want to work until age 70, then taking benefits at an earlier age can make sense. At the very least, you will want to know your full retirement age and how claiming early can affect what you will receive in lifetime benefits.

Talk to your financial advisor about this for help. It’s good to consult with someone who understands different claiming strategies for Social Security. Knowing when to claim benefits can be a tricky business in some respects, especially for couples or divorced individuals.

8. Reduce tax burdens on your income streams.

Did you save for retirement in a workplace retirement savings plan or an IRA? While your money grew without taking any tax hits, you may face some hefty tax bills on the backend. Not only that, but your withdrawals from these accounts can also make your Social Security benefits more taxable.

How can you prepare for this? You might consider converting some accounts to Roth accounts for lifetime tax savings. What’s more, fueling income streams with sources like non-qualified annuities can help reduce your overall taxable income.

If a year comes where you have earned less income than usual, then it might be good to explore converting at least some of your traditional IRA to a Roth IRA.  The strategic timing could enable you to pay a lower tax rate on your conversion. Ask your tax advisor for more information on how you can minimize your tax bill during retirement.

9. Don’t forget about healthcare risks.

Did any of your family members spend a long time in a nursing home before they passed on? If so, how did they pay for it? This is another important question to think through.

See how you can manage costly income risks from long-term care, terminal illness, or general disability. You might be able to leverage an insurance solution to help relieve the stress on your pocketbook.

One possible solution is a permanent life insurance policy with accelerated benefit riders that can be used for long-term care expenses. Unlike with long-term care insurance (which also has a place), the advantage to having this type of policy is that the insurance carrier probably won’t raise your rates. Ask your financial professional for more details on this.

Should you end up not needing any long-term care, then you will still have the cash value in the policy and the death benefit.

10. Stick to your plan, even when it might be hard to.

This simply boils down to focus and discipline. You don’t want to let your emotions run away with you.

If you felt that the plan you developed and implemented was fundamentally sound, then you should continue to follow it regardless of what is happening in the markets or the economy.

If you are worried about your financial situation, ask your advisor for an objective take. They can help you waylay those fears and make adjustments if they are needed.

11. Revisit your plan with your advisor on an ongoing basis.

Nothing is foolproof, and this goes even for the best-laid plans. Keeping in ongoing communication with your financial professional. Meeting with them about life changes can help you keep a good head on your financial wellness.

These steps will allow you to take control of your finances during retirement. Consult your financial advisor for more information on what you need to do to prepare for yours.

Need Help with Your Retirement Income Planning?

Whether you are just starting to plan for your retirement or want a second opinion of your current plan, many independent financial professionals are available at to assist you. They are well-versed in the unique opportunities and challenges that retirement brings.

If you are looking for someone to guide you, please visit our “Find a Financial Professional” section to get started. You can connect with someone directly and request an initial appointment to discuss your situation and goals. Should you need a personal referral, call us at 877.476.9723.

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