Investors who have recently taken a hit in the market are struggling to find peace of mind when it comes to securing retirement income for life. Do not abandon; it can be done.
Above all, peace of mind depends on more than just a pile of cash. Consider this scenario of a self-taught money manager who was lucky enough to move 80% of his holdings into cash in 2021. In addition to bragging about it, he offers his money management skills to friends and family .
However, these baby boomers aren’t as affluent, are a bit older, and because they haven’t transitioned into the money, they’ve recently taken a big hit in the market. Now, in addition to losing a significant portion of their retirement savings, they have another worry: Will I have enough income to sustain my lifestyle for the rest of my life?
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A stack of cash is fine, but what they need is more focused: enough income to support their lifestyle throughout their lives, access to funds in case of an end-of-life event retirement life and a legacy for the children. and grandchildren. With these needs, they will get that all-important peace of mind.
Let’s explore the qualities, rather than just the quantities, of a plan for all phases of retirement.
How to get retirement income for life
At the start of retirement, when you stop working, or when you work part-time, you need sufficient income to allow for this major change. Ideally, your plan will be easy to understand so you know where your income is coming from. When retirees had a pension with Social Security, planning was much easier. (And tax planning was much easier.) Now most retirees or near-retirees need a retirement income plan, like Go2Income (opens in a new tab).
With a Go2Income plan, annuity payments provide a portion of the guaranteed lifetime income that pensions have produced. However, you have many more options with these annuity payments, including:
- Annuity payment start dates.
- Income maintenance for beneficiary and surviving spouse.
- Choice of tiered, increasing or tiered income.
- Accounts used as source of annuity premium.
And since annuity payments also include tax benefits that will increase your disposable (after-tax) income, you need to consider all of these issues and their associated tax benefits and consequences.
The above might sound pretty basic, but the fund manager mentioned above doesn’t even think in those terms. It only looks at the pile of money and its size, not whether it can provide a lifelong stream of income or respond to life events, or how to take advantage of tax benefits.
How to deal with life events
I make a lot of plans for the future. I also hedge my bets in case things don’t go as I hoped, so I deploy annuities or insurance to protect against actuarial or life risks. Also, a plan like Go2Income should be designed to be easily adjusted in response to adverse market conditions, and where changes in your income will be relatively small and hopefully temporary when they occur.
A life event can be (1) a serious but short-lived medical condition, or (2) the discovery that your home needs a new roof. Both can be expensive and can also lead to a significant reduction in the value of your savings.
With a Go2Income plan, you can test your plan for, say, a substantial hit to your retirement savings. In many cases, you will find that you only need small income adjustments to recover. And you still have the option of pushing the market loss to a planned reduction in inheritance for children and grandchildren while maintaining your current lifestyle. Either way, you don’t have to wait for the market to turn to pay your bills.
With your original Go2Income plan, you could be generating more income (after taxes) than you need each month, and you can use that higher income to pay for long-term care and better health insurance coverage. , so that the state of health will not put you out of business.
And, if you already have good health and long-term care insurance, you can invest that extra income you earn in an inherited account.
How to plan an inheritance
The best plan should include not worrying about money, especially at the end of retirement. You may be traveling a little less and decide to downsize (getting rid of both the lawnmower and the snow blower) so you won’t be spending as much each month. However, there may be other expenses that supersede them.
With a successful Go2Income plan, most of your income – especially at the end of retirement – will be “safe” and will come from Social Security, annuity payments, dividends and interest, with fewer withdrawals from your IRA rolling.
To ensure that either spouse has income protection (even if one lives several years after the spouse who dies first), you can choose an annuity payment option that continues until to the survivor. If you think the surviving spouse will need less income, you can use this savings for a larger inheritance. You can also choose to continue paying the pension to a beneficiary other than the spouse.
You could set aside additional income for a financial inheritance and invest it in an account like a Roth IRA, which will allow your heirs to receive the money tax-free. Or you might want to set up a Health Savings Account (HSA). You will find that having a secure source of income allows for these types of decisions.
Finally, when developing your retirement income plan, you may want to do some estate planning at the same time.
How to have peace of mind
I will again mention the fund manager –
Interruption to fight against inflation…
Expect! I cannot end this article without discussing inflation and how Go2Income deals with it. As I wrote in my article Factoring Inflation into Your Retirement Plan, you can create an income plan that anticipates inflation over many years and allows for adjustments. How you decide to approach market risk, longevity risk and inflation risk will help you choose the best plan for you.
Back to our friend the fund manager…
With your Go2Income plan, you use a portion of today’s retirement savings to buy a lifetime of secure income and including other sources that don’t require securities liquidation. And you use some of that income for insurance protection and/or estate growth.
The fund manager does not have these future life events on his screen. If the future brings something unexpected (and it always does), a pile of money, in the worst case, might not meet your needs at the end of your retirement.
What I’m really talking about is the peace of mind that comes with a lifetime income plan, the ability to adapt to bad news, and the gift of a legacy.
You can’t control what the market does. You can control your plan. Visit Go2Income (opens in a new tab), answer a few simple questions and start building your own retirement plan. It’s free and you can ask a Go2Specialist to help answer your planning questions. We also have advisors available who can help you with the next steps to refine and then implement your plan.
This article was written by and presents the views of our contributing advisor, not Kiplinger’s editorial staff. You can check advisor records with the SEC (opens in a new tab) or with FINRA (opens in a new tab).
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