How Do I Create Retirement Income That Will Last?

Much like we are seeing on the televised FIFA football matches (an incredibly popular sport known as soccer here), with one snap of a finger a bad call, a bad mistake, or bad judgment can cost you the game. And analogously, it’s the unexpected things in life that can derail your portfolio and change your financial circumstances so quickly.

This is why being proactive is so important. When you are in your retirement zone, you’re ready to go. You need to create reliable income streams for retirement income. So, what do you do now? You’re going to the dance, but you don’t have a date. Now you have to turn this accumulated money into an income stream. You need a retirement strategy.

As a reminder, the accumulation phase of life is where you are working and earning money. It’s where you’re saving your assets and accumulating money so you can retire down the road when you want to retire, whether it’s at 55, 60, 65, or older. You’re still working, you’re still getting paid, you’re putting money away, and you’re hoping it grows. Then suddenly, you quit working and retire. Now you have to take money out of savings to live on, and you have to find a way to do it so that you don’t run out of money someday.

The hardest day of your life might be the day you retire, because now you’re going to have to start paying yourself. This is when not having a plan can really mess you up. Because where’s the money going to come from? How long is it going to last? No one can answer that question about how long we’re going to live! So, you have to have a plan to last more than 100 years to be safe.

Retirement Income Strategies

When it comes to creating retirement income, you have to start with a budget. Everyone should have a retirement budget, but most people just don’t. For instance, let’s say you need to have a budget of $6,000 a month to pay all your bills and do what you want to do. So where is that $6,000 going to come from? The last time I checked, that $6,000 per month is $72,000 a year. Then you have to add and factor in for inflation going forward.

Financial experts use something called the 4% rule, which I think is down to 2.6% now because of inflation. But just use this 4% rule as an example. Let’s say you have saved up $1 million. I’m just going to throw that number out there because so many financial articles talk about that million-dollar number. Taking out 4% gives you $40,000 a year, at least that first year. Is that the full $72,000 you need? No, it isn’t. But if you add in Social Security and some other income avenues you have yourself, you might get to the $72,000 you need.

But happens if the market drops? If the market drops when you are withdrawing money from your accumulated portfolio in the market, especially at the beginning when your account balance is the largest, you could see “sequence of returns risk” that could wipe out your portfolio prematurely! We saw that in 2008 during the global recession, when so many people lost their retirement funds and had to move in with their kids or start working at Walmart.

That’s why at Clear Income Strategies Group, we consider income annuities for your retirement income.  With an income annuity, you’re not going to have the growth that the market could potentially have, but you also won’t suffer any market losses due to sequence of returns risk, because we only use annuities that give you a guarantee against market loss backed by the financial strength of the insurance company issuing the annuity. We will look at an annuity designed to give you that $72,000 you need, or whatever amount makes sense in line with your budget, your savings, and your other sources of income, so that you know you will have the money you need to fund your retirement lifestyle for the long-term.

But even better, a retirement income annuity can take away the longevity risk, which is a big one. Since none of us knows how long we will live; we only know that people are living longer, a lifetime income annuity provides income no matter how long you live.

This is what retirement income planning does. It helps you plan out where your income will come from, and how you can make it last.

Let’s talk about longevity for a minute. When you are in your 60s, you might not be able to imagine longevity correctly in line with the lifespan medical science is giving us. But I have a client that’s just turned 104. Wow. Nine years ago, her portfolio went to zero. Zero! But guess what? Her lifetime retirement income annuity is still paying her $42,000 a year. So, she’s got nine years of receiving $42,000 a year, plus that amount every year going forward, plus her Social Security… no matter how long she lives! And she’s still doing great. Can you see how that is making her life a lot easier, not being dependent on a relative or somebody else for money?

That’s what a retirement income annuity can do. That is the piece that a lot of people don’t understand: an annuity can give you peace of mind and a guarantee. But I do understand. My name is Dolph Janis, financial advisor in Charlotte, and I am a fiduciary and a Certified Annuity Advisor^SM with access to hundreds of different kinds of annuities from dozens of different insurance companies.

Retirement withdrawal strategies are critical in creating your retirement income plan. Without them, it’s like jumping into a car without a gas gauge. Even if you have a full tank of gas starting out, if you don’t have a gauge on your dash you won’t know exactly when you will run out of gas. (Or in the case of your finances, you won’t know when you might run out of money.)