How Reliable Will Your Income Be in Retirement?
As a retirement income planning specialist, this is one of the important questions I want my clients to consider. I see lots of strategies that will work fine, as long as there are no bumps in the road along the way.
Things like bear markets in stocks, an unforeseen illness, increases in inflation, the cost of care for you or a loved one and recessions all have a way of disrupting retirement income plans.
There are many others, but these are the ones I see the most. Any plan to “Retire Happy” has to include contingencies for these, and other random events that could disrupt your happiness in those Golden Years.
8 Key Questions To Answer About Your Income Planning
- How much time and effort am I willing to dedicate to maintain the plan? Many of the more popular strategies I see people attempt to use can only succeed with regular maintenance. This is fine as long as it is something that interests you, and you actually do it!
- Will my income last my lifetime? This would be easy math if you knew the day you were going to die. Running out of money after a few years in retirement can be devastating. Have you included protected income into the plan?
- Will my income keep up with inflation? While we hear that inflation has been relatively tame over the last 10 or 20 years, that has been based on something called the CPI-U, which is the consumer price index-Urban. This is the generally used measure for changes in the cost of living. However, the CPI-E is a measure of inflation for those of us over the age of 62. It reflects the kinds of things older, retired folks spend their money on. This indicator has shown much higher levels of inflation as costs of housing, healthcare, and medical care services have gone up much more than the cost of a TV for example.
- How reliable is the source of income? If you are depending on dividends, rents, bond interest, etc. How reliable is the income? What could interrupt the cash flow? For example, PG&E used to be called a ‘widows and orphans’ stock. It was safe and paid a nice big dividend, so it was considered a great source of retirement income, until Enron came and bled them until the dividend got canceled. Stocks have become much more volatile in the last couple of decades, so the “sequence of returns” becomes a risk to your income as well.
- If you have a pension, do you understand how to “maximize” your benefit? The default option on most pensions can leave hundreds of thousands of dollars on the table you could have enjoyed in retirement.
- Do you have a plan to maximize your Social Security benefits? Again, the wrong claiming strategy can cost you big time. According to studies, most claimants cost themselves tens, and sometimes hundreds, of thousands over their retirement.
- Will healthcare costs derail my happy retirement? The biggest cause of bankruptcy in retirement are unforeseen medical costs, do you have a plan?
- Do you know how to take advantage of the Secure Act? This recent legislation has created some powerful tax benefits that can be used to offset taxes on your retirement account withdrawals for certain medical and long term care costs.
How To Use These 8 Questions To Your Benefit
Given the recent increase in volatility and the weakening of the economic outlook for the country, having a plan is more important than ever. I encourage you to take the time now to make sure your plan considers all the above.
While this is a partial list of things to consider, if you have these items in your plan, you will be well on your way to that happy retirement.
Remember; “People don’t plan to fail; they fail to plan”. Let me know if I can help you make sure you are able to “Retire Happy”!
Roger holds the coveted and well-earned designations of Chartered Financial Consultant (ChFC®) and Retirement Income Certified Professional (RIPC®) from the American College. He is also a licensed insurance agent for life and health insurance and a Certified Paralegal for Estate Planning.