Certified Safe Money Admin
Certified Safe Money Admin
Retirement Planning – Will You Be Financially Comfortable in Retirement
With approximately 10,000 Baby Boomers turning age 65 every day, the number of retirees in the U.S. is skyrocketing. But just because someone has reached “retirement age” doesn’t necessarily mean that they are ready to actually retire.
Age has far less to do with retirement readiness than income generation sources that produce enough passive cash flow to pay for your ongoing living expenses – such as housing, food, and healthcare – as well as some extra income to accommodate other items like fun, entertainment, and travel.
Based on your current and future projections, will you be financially comfortable in retirement?
Retirement Requires a Plan
Given the volatile stock market and historically low-interest rates, having your retirement fall into place on its own can be detrimental to your future financial security. Gone are the days when people worked for just one employer for their entire career and were handed a gold watch and a lifetime income stream as soon as they turned 65.
In most cases, today’s workers will be largely responsible for creating and generating enough retirement income. For instance, if you’ve been socking away contributions to a 401(k) plan, it will be up to you to convert your savings into an ongoing income stream in the future.
You may also qualify for Social Security retirement income benefits. If you do, though, you’ll need to determine when the best time is for you to file for this program. You are allowed to claim as early as age 62. But if you do that, the amount of each income payment will be reduced – not only in the short-term but also permanently.
On the other hand, if you do not need your Social Security income right away, you could wait to file until after you have surpassed your full retirement age (FRA). This is the age at which you are eligible for your full Social Security benefit.
Social Security Full Retirement Age
|Year of Birth||Minimum Retirement Age for Full Benefits|
|1937 or Before||65|
|1938||65 + 2 months|
|1939||65 + 4 months|
|1940||65 + 6 months|
|1941||65 + 8 months|
|1942||65 + 10 months|
|1943 to 1954||66|
|1955||66 + 2 months|
|1956||66 + 4 months|
|1957||66 + 6 months|
|1958||66 + 8 months|
|1959||66 + 10 months|
|1960 or Later||67|
Source: Social Security Administration
Each year that you delay filing for Social Security beyond your FRA can give you an annual “raise” of 8% (until this delayed income credit stops at age 70).
What are Your Retirement Income Goals?
Before you carve out a retirement income plan, it is recommended that you first decide what you need your income to do for you. For instance, one key requirement for most retirees is that they have enough income coming in to pay for basic living expenses. You can determine your approximate income needs by creating a budget of estimated costs in the future.
You should also come up with an estimate of your non-essential costs. These could include travel, entertainment, the purchase of an RV or second home, or any other item or activity you hope to take part in after leaving the working world.
In addition, given longer life expectancy now, your retirement income might need to stretch for 20 or more years. So, you will want to make sure that you can still count on one or more reliable income streams – regardless of how long you may need them.
Income Planning is Not a DIY Project
There are many factors to consider that pertain to your financial comfort level in retirement – starting with the amount of net income you have available to spend. For example, it’s not enough to just simply generate income in retirement. You will also need to determine which income streams will be subject to tax (as well as how much those taxes will be).
You could also run into some additional penalties, such as the 10% IRS early withdrawal charge if you withdraw money from certain accounts before reaching age 59 ½. Likewise, various insurance and annuity products can also charge surrender penalties if you access funds before a certain amount of time has elapsed.
Another potential hurdle in retirement planning is debt. Having loans or credit card balances to contend with can siphon your income – and in turn, can reduce the amount of funds that you could otherwise put into savings. So, it is important to consider any debt that you have and your plan for reducing or eliminating it – into your overall retirement plan.
With so many variables in play, retirement income planning is definitely not a do-it-yourself project. Rather, it is recommended that you work with a retirement income specialist who is knowledgeable about withdrawal strategies, tax reduction techniques, and Social Security filing options.
This individual may or may not be the same financial professional you are currently working with. There are numerous investment and financial representatives that are very good at growing and protecting assets in a myriad of market environments. But these same individuals may not be as familiar with viable strategies for transitioning what you have saved into an ongoing stream of income for as long as you need it.
Will Your Current Retirement Plan Allow You to Be Financially Comfortable?
It is never too early or too late to put a plan in place for retirement. So, if you’re ready to strategize about the income you need in the future – or if you already have a retirement plan in place and you would like to get a “second opinion” – our income specialists are here and ready to help.