Even during challenging times, it is possible to secure retirement income that ensures a comfortable lifestyle, lasts throughout your lifetime, adjusts to life’s uncertainties, and leaves a meaningful legacy for your children.
Individuals who have faced substantial market losses may encounter challenges in finding peace of mind while striving for a sustainable retirement income. Nevertheless, it is crucial not to lose hope, as attaining this goal is still within reach.
Importantly, peace of mind in retirement depends on more than having a substantial amount of money. Consider the following scenario: a self-taught money manager who managed to move 80% of their holdings to cash in 2021. While they may boast about this achievement and offer their money management skills to friends and family, it’s crucial to recognize that other Baby Boomers, who are slightly older and did not take the same action, have suffered significant market losses. Now, these individuals not only face the loss of a substantial portion of their retirement savings but also worry about whether they will have enough income to sustain their desired lifestyle throughout their remaining years.
While having a significant sum of money is desirable, retirees truly need a targeted plan that provides sufficient income to support their lifestyle throughout their lifetime, offers access to funds in case of unexpected events during retirement, and enables them to leave a legacy for future generations. Fulfilling these needs is the key to attaining that all-important peace of mind. Let’s explore the essential qualities of a comprehensive retirement plan that covers all phases of retirement.
Achieving Lifetime Retirement Income
During the early stages of retirement, when you stop working or transition to part-time work, it is crucial to have adequate income to facilitate this significant life change. Ideally, your plan should be straightforward, enabling you to understand your income sources. In the past, retirees with pensions and Social Security had an easier time planning for retirement. Nowadays, most retirees or those nearing retirement need a retirement income plan.
Annuity payments can provide guaranteed lifetime income, similar to pensions. However, these annuity payments offer more flexibility, including options such as the start date of payments, income continuation for beneficiaries and surviving spouses, different income levels (stable, increasing, or laddered), and the ability to utilize various accounts as sources of annuity premium. Moreover, annuity payments offer tax advantages that enhance your spendable income after taxes. It is crucial to consider all these aspects, including their related tax benefits and consequences.
It may sound like basic advice, but the money manager fails to consider these factors. Their sole focus revolves around the magnitude of their wealth, neglecting to consider its capacity to generate a consistent lifelong income, withstand unforeseen circumstances, or leverage potential tax advantages.
Addressing Life Events
Deploying annuities or insurance can protect against life risks or actuarial uncertainties. A well-designed plan should be easily adjustable in response to adverse market conditions, with income changes being relatively small and hopefully temporary when they do occur.
A life event could be a severe but short-term medical condition or the realization that your house requires a new roof. Both scenarios can be expensive and potentially diminish the value of your savings. However, you can test your plan’s resilience against substantial shocks to your retirement savings. In numerous instances, minor adjustments to your income may be sufficient for recovery. Additionally, you can always absorb market losses through planned reductions in the legacy you leave for your children and grandchildren while maintaining your current lifestyle. This way, you won’t have to wait for the market to rebound to meet your financial obligations.
A good plan can generate more income (after tax) than you need each month. You can utilize this surplus income to cover expenses related to long-term care and enhance your health insurance coverage, ensuring that a medical condition doesn’t lead to financial hardship.
Suppose you already have robust health and long-term care insurance. In that case, you can invest the additional income you earn into a dedicated legacy account, further securing your financial future and the future of your loved ones.
Providing a Lasting Legacy
A well-rounded retirement plan should alleviate any concerns about money, particularly in the later stages of retirement. Your monthly expenses may decrease as you travel less and consider downsizing your home (bidding farewell to the lawnmower and snow blower). However, new expenses may arise in their place.
With a successful plan in place, most of your income, especially in the late stages of retirement, will come from reliable sources such as Social Security, annuity payments, dividends, and interest. You will rely less on withdrawals from your rollover IRA, ensuring a steady and secure income for you and your spouse.
To safeguard either spouse’s income, even if one outlives the other by many years, you can opt for an annuity payment option that continues to the surviving spouse. If you anticipate the surviving spouse requiring less income, you can allocate the savings toward a larger legacy. Additionally, you can have annuity payments continue to a non-spouse beneficiary.
By directing any additional earnings towards a financial legacy and investing in accounts like a Roth IRA, you can leave behind assets for your heirs without subjecting them to unnecessary tax burdens. Alternatively, you may contemplate the establishment of a health savings account (HSA). With a reliable income source, you can make well-informed decisions regarding the future and guarantee financial stability.
While constructing your retirement income plan, engaging in estate planning concurrently might also be prudent. Engaging in estate planning concurrently will empower you to handle legal matters and ensure that your assets are distributed in alignment with your desires, granting you an extra layer of peace of mind.
Remember, achieving peace of mind with your retirement income requires a comprehensive plan that goes beyond the size of your savings. By focusing on generating lifetime income, preparing for unexpected events, and planning for a lasting legacy, you can secure a financially stable and fulfilling retirement.