The number one consideration of most nearing retirement is will I outlive my money? The second, which is really part of the first, How can I pay for long term care if one or both of us need assistance, whether at home or in a assisted living facility or nursing home?
There are two basic questions that no one can answer:
- How long will I live after I retire?
- What will happen to the stock market, tomorrow, next month, next year, or the next ten years?
Will I still have enough income to support the lifestyle I want after I retire? What happens when one spouse dies, will the remaining spouse still have enough income to maintain the life they both planned to live? How do I make provisions for the income gaps that will occur when I go from bringing home a regular paycheck to relying on my retirement income? How much income will my spouse continue to receive after I pass when one social security check is terminated and what happens to pension income after passing? Does it continue, terminate or get reduced? What happens if one or both spouses need long term care?
Doesn’t it make sense to provide a guaranteed source of income that you cannot outlive, that will not decrease because of the death of one spouse, and that will meet your needs, including the effects of inflation, throughout your retirement?
Retirement planning is more than planning for finances in retirement. While insuring adequate retirement income is the number One concern, other considerations cannot be ignored. Each of us is different and have different needs. Are you married, widowed, divorced, single? Do you have children? Are any of your family dependent on you for partial or complete support. What is your medical condition? What type of medical facilities will you require in retirement? If not working, what will you do in retirement? The quickest way to get “old” and deteriorate is to sit around and do nothing.
During your working years, social interaction may have been provided by contacts at work, neighbors and friends, contacts at church or social clubs, interaction with other parents through your children’s friends at school or church activities. The availability of many of those contacts may wane after retirement. Children grow up and make new friends, go away to college or the military, transfer to various locations to accommodate their own job requirements. The need for social interaction remains.
Where will you live when you retire? Will you stay in the same home you’ve lived in for years. Do you need something smaller when the children move out? Are you tired of shoveling snow and want to move to Florida or Arizona? Do you have hobbies that you want to be able to pursue when you have more time to do so? Do you want to travel and see the world? Do you want to start a parttime business to satisfy a passion that your employment didn’t allow time to explore?
How about healthcare? Will medicare pay all your medical expenses? What does medicare pay for? Do you need to supplement the coverage from medicare with a supplement or other alternative? Do you need prescription drug coverage? How about long term care? Do you have special needs that dictate that you live close to facilities that offer the specialized care that you need?
One of the most significant planning activities is to eliminate debt before retirement. Having to make those recurring payments during retirement is one of the largest “stressors” expressed by most retirees. Interest rates paid on debt is far greater than interest earned on savings. Get rid of debt and enjoy the feeling of freedom that results.
Each of these, and many more, are valid and important considerations. Let us help you identify and then guide you to solutions that insure that you have the income for life you need when you retire.
Sources of Retirement Income
Most working Americans have only one source of steady income: their job. In retirement you are likely to have a patchwork quilt of several income streams. Retirement accounts, Social Security, home equity, pensions, and part-time work are the most frequently citied sources of expected retirement income. Let’s take a look at potential sources of retirement income.
Retirement accounts. A 401(k), IRA, Keogh, or other retirement account is how many workers plan to primarily finance their retirement. Many Americans expect to rely on tax-deferred accounts when they retire, however, “statement shock” that confronts workers when they check their 401(k) statements and see major declines in the value of their savings, prompts many to investigate other options. Qualified retirement accounts are a great way to save for retirement, but, as you approach retirement careful planning should be given to converting those accounts into an income stream that will last for the rest of your life.
Social Security. Many Americans expect Social Security to be a major source of retirement income. There is increasing pessimism about social security because of inadequate funding and increasing government deficits for social welfare programs. The solvency of Social Security is a perennial debate among economists and politicians, but very little is actually being done about it. The most important consideration is whether social security will provide adequate income to provide the lifestyle you want in retirement. If not, then where do you find the remaining income that you will need to sustain you for the rest of your life.
Stocks and Bonds. Some Americans are expecting to rely on dividends from individual stocks, bonds or stock mutual funds in retirement. Unfortunately these dividends can vary and are not guaranteed for life.
Savings. There has been a resurgence of interest in completely safe savings vehicles such as certificates of deposit and savings accounts. Many Americans expect to rely on these FDIC-insured accounts when they retire. Unfortunately interest rates fluctuate and are currently so low that many retires have to tap into the principal to cover ordinary expenses and create a declining pool of money from which to draw income. Once the money runs out, the income stops.
Pensions. Consider yourself lucky if you still expect to receive a pension in retirement. This used to be a mainstay of retirement planning for many Americans but very few companies offer pensions and many of the railroad and civil service pensions have limited availability to newer employees. Most pensions have reduced benefits to the spouse if the pensioner dies before the spouse.
Rent and royalties. A book or a rental property can bring in income long after you leave the workplace. About 6 percent of Americans expect rent and royalties to help finance their retirement. Rental properties require management and maintenance, which can become increasingly cumbersome as you age.
Inheritance. You could, of course, wait for your wealthy parents or relatives to help finance your retirement (and hope they don’t write you out of their will).
Annuities or insurance. More and more Americans are planning to rely on an annuity or some form of insurance product to finance retirement. An annuity is the only source of “guaranteed income for life”. The guaranty is not from the federal or state government, but from the Insurance Company. It is very important to select a financially stable insurance company that has the demonstrated track record of consistently paying claims. Several rating agencies rank insurance companies for their claims paying ability and financial strength and outlook. The four major insurance company rating agencies in the U.S. are A.M. Best, Moody’s, Standard and Poor’s and Fitch.
Part-time Work. More and more “retired” Americans find that their income doesn’t meet their needs and have to find part-time work to supplement their income. More appropriately these persons might be categorized as “Part-Retired”. Unfortunately, these part-time opportunities are often not in their field of competency and provide much less income then when employed in their specialty field. Additionally, because of declining physical stamina, the reliability of continued income is limited.
You are never too early to begin planning for retirement. Check out Bryant Retirement Solutions for a more detailed analysis of your current financial status and suggestions as to how to make your retirement worry free and secure.