Will I Earn Enough Retirement Income to Support My Lifestyle?

Published on: Dec 7, 2020
Couple enjoying retirement lifestyle watching sunset at the beach.
image_printPrint Article

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.[1]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 Generation[2]https://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 shifted[3]https://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 higher[4]https://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 percent[5]https://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 percent[6]https://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 decade[7]https://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 fixed[8]https://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 comfortable[9]https://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

 

Disclosure

Disclosures:

Beacon Capital Management, LLC “(Beacon Capital”), is an independent financial services firm helping our clients to create retirement strategies using a variety of investment and insurance products to custom suit their needs and objectives.

Advisory services are offered for a fee by Beacon Capital, a registered investment advisor with the Securities and Exchange Commission (“SEC“).  SEC registration does not imply a certain level of skill or training.  Investing involves risk.  Past performance is not a guarantee or indicative of future returns.  The value of your investment(s) will fluctuate, and you may gain or lose money.  Beacon Capital is not affiliated with TD Ameritrade Institutional or Beacon Accounting and Tax, or Knight Legal.

Investing involves risk, including the potential loss of principal. No investment strategy can guarantee a profit or protect against loss in periods of declining values.  None of the information contained on this website shall constitute an offer to sell or solicit any offer to buy a security or any insurance product.

Commentary & Third-Party Disclosures

Beacon Capital’s article on this Site is for informational purposes only and does not constitute a recommendation to buy or sell securities. You should not rely on this information as the primary basis of your investment, financial, or tax planning decisions. You should consult your legal or tax professional regarding your specific situation.  Certain sections of this commentary may contain forward-looking statements that are based on our reasonable expectations, estimates, projections, and assumptions. Forward-looking statements are not guarantees of future performance and involve certain risks and uncertainties, which are difficult to predict.

This article may contain links to other third-party websites, including links to the websites of companies and/or governmental agencies that provide related information, products, and services. These external links are provided solely for convenience, and the inclusion of such links does not necessarily imply an affiliation, sponsorship, or endorsement of those links. Beacon Capital does not endorse, approve, certify, or control these external Internet addresses and cannot guarantee or assume responsibility for the accuracy, completeness, efficacy, timeliness, or correct sequencing of information located at such addresses. The performance and composite information that is shown on this site, uses or includes information obtained from third-party sources. Third-party data is obtained from sources believed to be reliable but Beacon Capital cannot guarantee the accuracy, timeliness, completeness, or fitness of any third-party data.

Tax Disclosures

Beacon Capital does not represent in any manner that the tax consequences described herein will be achieved or that Beacon Capital’s activities in managing a client’s investments will result in any particular tax consequence. The tax consequences that Beacon Capital may pursue are complex and uncertain and may be challenged by the Internal Revenue Services (“IRS”). The information with regard to this activity was not prepared to be used, and it cannot be used, by any Client to avoid penalties or interest.

Clients should confer with their personal tax advisors regarding the tax consequences of investing with Beacon Capital, based on their particular circumstances. Clients and their personal tax advisors are responsible for how the transactions conducted in an account are reported to the IRS or any other taxing authority on the Client’s personal tax returns.  Beacon Capital assumes no responsibility for the tax consequences to any Client of any transaction. We are not tax professionals. Clients should consult qualified legal or tax professionals, such as tax attorneys or CPAs, regarding their specific situation.

Trademarks

Beacon Capital, the Beacon Capital logo, and other marks are registered trademarks and service marks of Beacon Capital. Other third-party marks displayed are trademarks of their respective owners, and the use of such trademarks does not imply an association with those third-parties or an endorsement of any third-party goods or services.

References

1 https://finance.yahoo.com/news/americans-retiring-increasing-pace-145837368.html
2 https://www.forbes.com/sites/neilhowe/2014/08/13/the-silent-generation-the-lucky-few-part-3-of-7/#2dfae3122c63
3, 6 https://www.cnbc.com/2020/09/15/social-security-cost-of-living-adjustment-could-be-1point3percent-in-2021.html
4 https://www.forbes.com/sites/forbesfinancecouncil/2020/03/16/know-your-life-expectancy-and-the-larger-implications/?sh=434d73c21714
5 https://www.statista.com/statistics/244983/projected-inflation-rate-in-the-united-states/
7 https://www.pgpf.org/blog/2019/05/healthcare-costs-for-americans-projected-to-grow-at-an-alarmingly-high-rate
8 https://www.newretirement.com/retirement/retirement-101-what-is-fixed-income/
9 https://www.usatoday.com/story/money/2020/09/15/social-security-benefits-checks-could-rise-1-3-next-year/5798699002/

Pin It on Pinterest

Loading...