People are living longer — which means more time to enjoy life after work. But it also means that your retirement income may need to last much longer than your grandparents’ did. In order to plan for a lengthy and comfortable retirement, it’s crucial to understand where your money will come from. Let’s look at the puzzle pieces of your retirement income and how they might fit together.
Social Security has clear advantages over most income sources: It’s inflation-adjusted, guaranteed for life and requires no active management. But the system was designed to provide supplemental income only. In March 2013, the average monthly benefit was $1,2651, which is not enough for most people to live comfortably. And the future of Social Security is uncertain, as government leaders debate modifying the program to help reduce the federal debt.
Deciding when to claim Social Security is an important and complex issue. You can begin as early as age 62, but your monthly benefit will be up to 25 percent less than your full retirement amount. The longer you delay — which you can do until age 70 — the higher your benefit will be, although in the long run you’ll have fewer months to collect payments. Beyond the numbers, you should also consider your health status, ability and desire to work, and your other financial resources.
Once a major source of retirement income, pensions are now an endangered species. If you’re lucky enough to be expecting a pension, be aware that many employers are changing their plan provisions. Find out whether your pension will increase with inflation and how any increase is calculated.
Many people are delaying retirement or assuming that after retirement, they’ll work part-time, start a second career or act as a consultant. Obviously, the longer you continue to earn, the less you’ll rely on your savings, leaving more to accumulate for the future. A job may also provide access to affordable health care. Bear in mind that it’s unlikely you will be willing or able to work until the very end of your life, so it’s important to allow for that possibility as you build your retirement plan.
Most people rely on personal savings in tax-advantaged plans — such as an IRA or a 401(k) — and investments in taxable accounts for the lion’s share of their retirement income. You may have other assets to tap as well, such as the equity in your home or business. The challenge is to convert your assets into ongoing income in a way that complies with legal requirements, allows for favorable tax consequences and maximizes your money. You’ll want your nest egg to last as long as you do, perhaps with a comfortable surplus for your heirs.
Solving The Puzzle
Planning your retirement income is like assembling a jigsaw puzzle. I can help you fit the pieces together to compare different Social Security scenarios, review any pension questions, discuss possible earned income and create a timetable for drawing down your assets.
— By Erin Eddins, CFP,
Erin Eddins is a Certified Financial Planner professional and Chartered Financial Consultant with an emphasis on investment and retirement planning services. She specializes in Social Security maximization, pre- and post-retirement planning strategies, and asset management. Erin graduated from Seattle University’s Albers School of Business with a Bachelor of Arts degree in business administration and a minor in economics. You can contact her at firstname.lastname@example.org, 425-2125986 or www.stancorppugetsound.com.