Retirement Income Planning – Part 1

Retirement income planning is a hot topic today that bears some discussion.  This is the first in a series of articles that will tackle the issues most important to those of us facing retirement in the next  ten to 15 years.

When contemplating retirement, the major financial concern is the replacement of a steady income that used to come from a regular paycheck.  This income needs to outpace inflation and last throughout retirement, a period that can be 20 years or longer.

How to tackle such a daunting task? Let’s start with a goal.  The amount of income you will need annually in retirement will fluctuate over time, of course, but you need to make a concerted effort to come to a realistic estimate of your needs.  Once you have that as a starting point, we can start to look at how to make that goal a reality.

The first category to consider in developing a Retirement Income Plan is sources of steady income:

  1. Pensions are provided by your employers and should provide a fixed amount of monthly income based on how you choose to receive it at retirement.  For instance, the monthly amount can be computed on your life only, your life plus a spousal benefit, etc.
  2. Annuities have the ability to pay out a certain amount each month over a period of time, or over your lifetime.  There are many fine points to any annuity contract so it is advisable to check with your advisor to fully understand the benefits, rules and tax treatments of your individual contract.
  3. Social Security is provided for the majority of workers in the U.S.  There are exceptions for state, local and federal government workers who are provided with pensions through those entities.  The benefits due to you can be found at www.ssa.gov where you can create an account and log in to see your estimated benefits at various ages.

You have some control over your pension and annuity income depending on the contracts.  You can ensure that a spouse is provided for after your death.  You also have some control over your Social Security benefits, if you know what options are available to you.

For instance, you are eligible to begin taking your Social Security (SS) benefits at age 62, but it will be as much as 25% less than you would receive if you waited until your full retirement age (FRA) or to as late as age 70.  If you are married and your spouse is eligible for benefits there are specialized strategies that can be used to maximize your SS benefits over time as a couple.  If you are widowed or divorced there are maximization strategies as well, subject to certain limitations.

Did you know?

  • Each year you delay taking your SS benefits after FRA means an 8% increase in your benefits, until age 70
  • If certain conditions are met, divorced spouses can collect benefits based on ex-spouse’s work history, and may be able to collect survivor benefits when  your ex dies
  • You can change your initial claiming choice within 12 months of first claiming benefits
  • There are up to 81 different strategies for married couples to consider

Contact us to develop a Retirement Income Plan that includes a Social Security maximization analysis, and get started on the path to the comfortable and dignified retirement you deserve!

 

Posted by: Cheryl Sternasty, CFP®