What Is Retirement Income Planning?
Reviewed by Pete Benson, Co-founder of Beacon.
Do you have a plan for your retirement? If you do, are you totally confident in your retirement plan? If your answer is “no,” you’re not alone. Unfortunately, only 40% of non-retired adults describe their retirement as “on track.”1
But financial education is more accessible than ever before. Unemployment rates are at a record low.2 So why aren’t Americans feeling more hopeful about their financial futures? We believe there’s some confusion out there around the idea of retirement income planning.
What Is Retirement Income Planning?
Retirement income planning is looking ahead to make sure you’ll have enough money during retirement to support a lifestyle based on your expenses, health, family, and values.
What Makes Up Your Income In Retirement?
Depending on how much you’ve thought about what your life could look like when you retire, you might be wondering, “What is retirement income? How will I pay for things when I get there?”
At Beacon Capital Management, we talk about the importance of having a strong financial house. The foundation for your financial house is your income. That foundation is made up of three parts:
Throughout your career, you’ve been paying 6.2% out of every paycheck into Social Security. Unless you’re self-employed, your employer has also been paying in 6.2% on your behalf. That’s a 12.4% investment over the course of your time in the workforce. So, Social Security isn’t something that should be taken for granted.
Many people don’t have a firm idea of how much retirement income their Social Security will provide. But you can actually get an estimate of your future benefits from the Social Security Administration here.
Now, there are over 2,700 rules that apply to how you take your Social Security benefits, so it’s important to work with an experienced financial advisor to make sure you’re getting the most out of them.
A pension is an investment portfolio that some companies offer as an employee benefit. The employer funds this investment—usually a percentage of the employee’s salary. After a set amount of time, the employee becomes “vested” and is eligible to receive the benefit.
But pensions are a rare benefit these days. According to the Pension Rights Center, only 31% of current retirees enjoy the security a pension provides.3 In the future, that percentage will decline dramatically because only 4% of employers in the private sector offer these traditional pension plans today.4
Is your retirement safe in today’s market? Watch our latest webinar for free to find out.
Other predictable income
Here at Beacon, most of our clients are either approaching retirement or already retired. That means putting all their money into an unpredictable market isn’t always a great option. That’s why it’s important to work with a financial advisor and talk through the best ways for you to protect your principle—like a fixed annuity, for example.
Your financial advisor can help you create a written retirement income plan. That income plan will detail all your predictable sources of income, which depending on your situation may include:
- Required Minimum Distributions (RMDs) from your retirement investments, like IRAs and 401(k)s
- Fixed annuities
- Treasury bonds
- Preferred stocks
- Rental property income
If you’re in Tennessee and want to learn your options to generate retirement income without betting the farm, come visit us for a free retirement income analysis.
How Long Will My Money Last?
We all want to maintain a comfortable lifestyle in retirement, but have you done a simple check to make sure your money will last to make that happen? The last thing you want to do is reach retirement only to run out of money and have to return to the workforce.
In 1950, the average life expectancy was 68 years old.5 That means if you retired at age 62, your retirement income might only need to last six years. But in 2022, the current life expectancy is 79 years.6
In order to figure out how long your money will last, you’ll need an estimate of your total savings and investment returns over time.
After that, you’ll need an estimate of your future expenses. Be sure to consider inflation, your health, unforeseen expenses, replacing vehicles, and other things you’ll need to pay for.
All of these factors affect how long your retirement income can last. Bring this information to a trusted financial planner and they can give you the whole picture of whether or not you’re on track to meet your retirement goals. If they run the numbers and it looks like you won’t have enough money to last, that means you have a retirement income gap.
What Is Your Retirement Income Gap?
Your retirement income gap is the difference between the cost of your standard of living and the amount you get from guaranteed sources of income.
For example, let’s say you’ll receive $3,000 every month in Social Security income, and another $1,000 each month from a pension. Your monthly retirement income would be $4,000. But maybe your monthly expenses are $6,000 each month. That means you’ll have an income gap of $2,000 every single month.
And remember, depending on when you retire, that $2,000 gap might be larger because of inflation. The exact same lifestyle you have now will probably cost more in retirement because the prices of goods and services continue to go up over time.
There are many creative solutions to fill that gap, and what’s right for someone else may not be right for you. Speak to a financial advisor you trust to find out what you can do to close your income gap.
How Do I Create a Retirement Income Plan?
Even if you can’t afford to contribute to certain income streams now, it’s a smart idea to think about which sources of retirement income you’re most interested in. That way, once you’re in a good place with your current financial goals, you’re more than prepared for the next step.
When it comes to creating a retirement income plan, look for a financial advisor or firm that cares about your whole picture.
3 Qualities to Look for in a Financial Advisor:
- A good listener, rather than someone who simply pays lip service
- Up-to-date on the latest financial trends,
- Well-rounded, as opposed to only good at one thing
Here at Beacon, we get to know you and your family to gain a true understanding of your needs and values. We also know that one detail in your retirement plan affects all the others, which is why we made the decision early on that our firm will cater to each of your retirement needs in a one-stop shop.
Working with us means your wealth management, healthcare planning, income planning, tax planning, and legacy will all be taken care of under one roof. We are also fiduciaries, which in a nutshell means, we act in your best interest. We’d be honored to help you with a customized retirement plan, or give you a free second opinion.
Give us a call today to set up a free, no-obligation consultation!
1 Federal Reserve. May 23, 2022. “Report on Economic Well-Being of U.S. Households.” https://www.federalreserve.gov/newsevents/pressreleases/files/other20220523a1.pdf. Accessed September 28, 2022.
2 U.S. Bureau of Labor Statistics. Apr. 15, 2022. “State Employment and Unemployment Summary.” https://www.bls.gov/news.release/laus.nr0.htm. Accessed April 25, 2022.
3 Pension Rights Center. Apr. 21, 2021. “Why Pensions Are Important.” https://www.pensionrights.org/resource/why-pensions-are-important/. Accessed April 25, 2022.
4 CNN. 2022. “How Common Are Defined Benefits?” https://money.cnn.com/retirement/guide/pensions_basics.moneymag/index7.htm. Accessed April 25, 2022.
5 Macrotrends. 2022. “U.S. Life Expectancy 1950-2022.” https://www.macrotrends.net/countries/USA/united-states/life-expectancy. Accessed March 3, 2022.
6 Macrotrends. 2022. “U.S. Life Expectancy 1950-2022.” https://www.macrotrends.net/countries/USA/united-states/life-expectancy. Accessed March 3, 2022.