If you think retirement income planning sounds like a buzzkill, you’re not alone. We all have dreams of what we want our retirement to look like, where we will live, how and with whom we’ll spend our time. But, without the right planning, the reality might be less than ideal.
If you’re not planning for your post-career income now, you’re doing a disservice to yourself, your family, and all those years of hard work and money earned.
Don’t Worry, Be Confident In Your Financial Future.
Baby Boomers are retiring in America—that’s a demographic shift of some 70 million people retiring at a rate of about 10,000 a day.https://finance.yahoo.com/news/americans-retiring-increasing-pace-145837368.html One of their biggest concerns? Will I have enough income and retirement to support my lifestyle? When you’ve worked a career’s length in years, you don’t want to spend the latter years of your life worrying about whether you’re going to have enough. You want a plan.
Baby Boomer’s parents, the so-called Silent Generationhttps://www.forbes.com/sites/neilhowe/2014/08/13/the-silent-generation-the-lucky-few-part-3-of-7/#2dfae3122c63 (born between 1925-42), didn’t have this issue because they had pensions and Social Security, and they got a cost-of-living adjustment. But much like many other things in the economy and today’s markets, things have shiftedhttps://www.cnbc.com/2020/09/15/social-security-cost-of-living-adjustment-could-be-1point3percent-in-2021.html. As you enter retirement, you need to have confidence this income will come through.
Get Real About Social Security
At Beacon Capital Management, we like to say that everyone in America, who is close to retirement, is building a financial house. As you visualize your financial house, the most significant part should be the foundation. Like any good foundation, your retirement should be rock solid. What is the key to making sure your retirement income is resistant to cracks and other avoidable damage?
The cornerstone is Social Security.
There are over 2,700 rules that apply to how you take your Social Security, and many folks don’t take steps to truly maximize it. Social Security is not an entitlement program; it’s actually an asset.
Throughout your working career, you put 6.2% of your annual salary into the Social Security system every single year. Your employer puts in an additional 6.2% a year – that’s a 12.4% investment every year, the entire time you work that goes straight into Social Security, a social insurance program created for retired workers.
The Hard Truth About Social Security
For most people, Social Security can produce somewhere between 20% to 30% of your retirement income needs. To prove the point Social Security is an asset, if Social Security brought you and your family $30k a year, the equivalent would be $500k in a bank account making 6% interest.
Unfortunately, that will not happen with today’s interest rates.
So you need $500k in a bank CD producing about 6% a year to get 30k a year of guaranteed income, which is next to impossible – this is why Social Security income is so important to your retirement plan.
How You Make Money & How You Take Money
A good place to start is with the choices you make on Social Security, which can be very complex. When you elect to take Social Security can affect the amount of money you get, and unfortunately, it can also skyrocket the taxes you pay. Life expectancy is much higherhttps://www.forbes.com/sites/forbesfinancecouncil/2020/03/16/know-your-life-expectancy-and-the-larger-implications/?sh=434d73c21714 than it was back in 1935 when Social Security was established, and you need to have confidence your Social Security and other income will last throughout your retirement, no matter its length.
One of the services we offer at Beacon is to guide you in developing a detailed income plan that starts with your Social Security, making sure you’re getting the most for you and your family.
Filling the Income Gaps During Retirement
Once we have a plan for your Social Security figured out, you want to make similar pension choices, if applicable. For many, a pension is a thing of the past. What this translates to for the average couple is that you will probably experience two-income gaps throughout retirement.
The First Income Gap
The first income gap comes as you first retire.
An income gap, by definition, is the difference between what it costs to support your standard of living and what you get from guaranteed sources like Social Security and pension.
For example, assume Social Security brings your family $3,000 a month. If you have a pension that gives you $1,000 a month, you would have $4,000 a month from guaranteed income sources. Your current standard of living costs $6,000 a month to support, what do you do?
What that means is you would have a $2,000 a month income gap between what you get from guaranteed sources and what you need to support your lifestyle.
It’s not that there are no risks, but the goal is to limit those risks as much as possible. When we’re developing an income plan at Beacon, our goal is to maximize Social Security, help you make wise pension choices, and make sure you have any income gaps filled with other guaranteed income sources.
The Second Income Gap & Misconceptions
The second income gap most couples experience is at the passing of one spouse. If the spouse was of retirement age, their social security goes away, and if there is a pension, it can be reduced, and sometimes erased.
When it comes to financial planning, one of the most common misconceptions we hear from couples is that when a spouse passes away, the cost of living and care should be less. To be candid, that’s simply not true. The Internal Monetary Fund has projected inflation in America in 2021 to rise at about 2.24 percenthttps://www.statista.com/statistics/244983/projected-inflation-rate-in-the-united-states/. The projected cost-of-living adjustment to Social Security in 2021 is expected to only increase by 1.3 percenthttps://www.cnbc.com/2020/09/15/social-security-cost-of-living-adjustment-could-be-1point3percent-in-2021.html.
As people age, they run into healthcare issues. And, as long as we’re facing uncomfortable statistics, in 2019, the Centers for Medicare and Medicaid Services (CMS) released new projections suggesting health care rates in America will rise by an average of 5.5 percent per year over the next decadehttps://www.pgpf.org/blog/2019/05/healthcare-costs-for-americans-projected-to-grow-at-an-alarmingly-high-rate.
Once you begin taking Social Security, your income is fixedhttps://www.newretirement.com/retirement/retirement-101-what-is-fixed-income/. If the rate of inflation exceeds your cost-of-living adjustment, and you add in rising health care costs — the income you thought would be enough, or certainly enough for one person, is no longer comfortablehttps://www.usatoday.com/story/money/2020/09/15/social-security-benefits-checks-could-rise-1-3-next-year/5798699002/. The point is you want to plan for that.
Have an income plan that understands these income gaps. Your written plan should fill these income gaps for 5, 10, and 20-plus years, so you can be confident you’ve done everything you can to address as many risks as possible.
How Does Investing Come Into Play During Retirement?
There are thousands of options with investments, such as stocks, bonds, ETFs, mutual funds, real estate investment trusts, or structured notes.
What’s right for you is not always suitable for your neighbor. The key thing to remember is that investments are nothing more than tools. There’s not a wrong or right tool, though they can become wrong if they don’t fit into your personal investment objectives and goals to fill these income gaps.
Sit down with a financial professional who will give you the cause, effect, possibilities, potential, and risks associated with these investments to fill income gaps. Don’t undervalue the peace of mind that comes with having your future planned well.
Planning the Retirement of Your Dreams
Schedule a call with one of Beacon Capital Management’s financial advisors today to discover your financial goals, priorities, and mindset. Create a plan, stay on track, and make your years of hard work pay off for years to come.
Securing the priorities in your life is more than reaching a financial number. You have goals for every stage of your life and reaching these goals requires a plan built on your priorities.
To learn more about how to integrate Social Security benefits into your retirement income plan, download our FREE Social Security Guide.
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