Retirement Guys: Retirement income optionsWritten by Nolan Baker Mark Clair | | firstname.lastname@example.org
Probably the No. 1 fear of a retiree today is running out of money. And the fear is often not the moment the money runs out, but the fear that is created watching an account value go down knowing that it is going to run out. It is like driving a car in the desert with no gas station around knowing that you aren’t going to make it. You just watch the gas gauge slowly go down. In this column we are going to explain the ways to keep the gas tank of retirement income as full as possible by looking at retirement income options.
Many people who are currently close to retirement time still have traditional pension options. A pension is a form of payment either in a lump sum or in monthly installments for life that a retiree gets for years of working for a company. A large lump sum of money can often seem appealing for a retiree. Yet, spend the lump sum too quickly and the money could run out. The lifetime monthly installments usually have a variety of choices: for the retiree’s life only, survivorship options for the spouse or life with a certain number of years guaranteed, called period certain. The highest income option is normally the life-only option. This can be a good option to get more retirement income, as long as the surviving spouse will be protected with life insurance or has his or her own income sources.
Making the correct decision on when to draw Social Security benefits is extremely important on lifetime income. Over 700 possible combinations exist for a married couple on when and how to draw benefits. Full retirement age is 66 for a person born between 1943 and 1954. The lifetime reduction to draw benefits at 62 is 25 percent and 30 percent if a person is drawing a spousal benefit. Wait to draw benefits past age 66 and earn an 8 percent increase each year up to age 70. The person who waits to claim benefits at age 70 will receive 76 percent more real dollars per month instead of taking benefits right away at the age of 62. It can make sense to set aside some of the investment assets to draw more off of in the early years so a retired couple can maximize lifetime income options of Social Security benefits.
Lot of investment options should be considered to increase retirement income. Many investors we talk with only look at the total return of their investments. That means how much the account value increased over time. Although growth is important, don’t forget to look at the income as well. Some investments are focused 100 percent on growth while other investments provide more predictable income.
Consider shifting some savings into an annuity. Several insurance companies offer immediate, fixed, indexed or variable annuities that can guarantee a lifetime of income. The guarantees are subject to the claims-paying ability of the insurance company. And not all annuity products work the same, so be sure to fully understand the pros and cons of each option before investing. Annuity payouts also range from product as well as company. Thus, to get more predictable income, compare income payouts from several different insurance companies. Annuities can be a great option for income.
We recommend that investors review the yield on each of their investment accounts. There can be a cost to liquidity; either an investor assumes risk of stocks, bonds and mutual funds or low rates on most traditional fixed accounts. That doesn’t mean there isn’t anything an investor can do to try and increase income. Traditional fixed rates may stay low for a while. Investors who own fixed accounts should shop around to see if higher rates are available. Those who own stocks, bonds and mutual funds should consider the advantages of owning investments that pay dividends and interest. A 1 or 2 percent increase in the total yield of the portfolio can often mean hundreds if not thousands of dollars of additional predictable retirement income.
One of the best parts of doing a financial review is finding money. In this case by taking time to review different retirement income options, in my opinion, is like getting a pay raise. And who doesn’t like more money (except maybe the baby in the Capital One credit card commercials)?
For more information about The Retirement Guys, tune in every Saturday at 1 p.m. on Newsradio 1370 WSPD or visit www.retirementguysnetwork.com. Securities and Investment Advisory Services are offered through NEXT Financial Group Inc., Member FINRA / SIPC. NEXT Financial Group, Inc. does not provide tax or legal advice. The Retirement Guys are not an affiliate of NEXT Financial Group. The office is at 1700 Woodlands Drive, Suite 100, Maumee, OH 43537. 419-842-0550