by Jerry Golden
Maintaining your financial independence throughout your life is dependent on the plans you make to create retirement income.
When you are working, you have to decide how much to put aside for your retirement savings account. You have to plan for your kids’ education, you plan for owning or renting your primary residence, and to take care of your insurance needs, plus a whole lot of other decisions.
When you approach retirement, to maintain your financial independence you need to decide where and when to retire and whether to continue working part-time. Financially, should you collect Social Security payments as soon as you can or wait as long as possible until age 70? Roll-over your 401(k) or other qualified savings? Begin a withdrawal plan, elect to annuitize your savings or a combination?
Late in retirement, your decisions might concentrate on downsizing, simplifying your finances, and reducing financial risk. Unfortunately, maintaining financial independence during this stage may require making smart decisions in the earlier stages.
At each stage, the focus should be on ensuring you have enough dependable, spendable income – for life. (The key is to find income that is guaranteed for the rest of your life.)
Financial independence means having enough income to meet your basic expenses and income you can count on.
Creating financial independence from your savings
-Your home can be an excellent source of tax-free income. Used in moderation, a reverse mortgage can provide both income early in retirement and liquidity later in retirement.
-Your rollover IRA acts as a replacement for a traditional pension, which most of us don’t get any more, and you can create some of the same peace of mind by allocating a portion of your IRA savings to purchase income annuities. You can also take a portion of these savings and purchase a QLAC (see below).
-Your deferred annuities have been compounding at tax-deferred rates of return for a number of years and building a nice nest egg. Like the rollover IRA, you can exchange all or a portion for income annuities to create both secure income as well as spread out any taxes that would be due if you merely withdraw the savings.
-Your personal savings can be a source of secure income if you have sufficient assets to generate meaningful dividends or interest. If not, take a portion of your conservative fixed investments to purchase an income annuity, which will increase the cash flow from these savings.
-Your Social Security is an important source of guaranteed income. If you can find income from other sources until you reach age 70, you may be able to delay taking Social Security payments to maximize the payout.
How to create dependable, spendable Income
In addition to Social Security or a traditional pension, a product called an income annuity is the only other way to provide guaranteed lifetime income. In return for a one-time payment, an insurance company will send you a monthly check for the rest of your life. The income can start immediately or at a later date, and there are other provisions you can apply, such as continuation of payments to a spouse.
One form of deferred income annuity called a “QLAC” or “Qualifying Longevity Annuity Contract” is purchased with rollover IRA savings. It provides income in the second stage of retirement, when health expenses can be expected to increase. A QLAC starts paying out at an age you choose, usually 80 or 85. And the payouts are substantial. That’s around the age many retirees start to recognize that their savings, which seemed very large 20 years earlier, might not pay all the bills over another 5, 10 or 15 years.
If you decide upon retirement to move into a smaller house, you might also consider the community and services: Will you require a car? Is there a local bus or train service? Is the library or community center easy to get to?
For peace of mind, the simpler your finances are, the less likely you will need help keeping track of them. You know what to expect if your income is deposited monthly from Social Security and an income annuity. You can also set up automatic bill payments, too. That means you don’t have to rely on a financial advisor and your kids don’t have to worry, either.
When you visit Go2Income, you can research what type of annuity might best suit your needs. It will also let you determine how much income your savings can provide, based on facts, not guesses about the stock market’s future.
Jerry Golden is a nationally recognized advocate for retirement planning, responsible for landmark innovations for Mass Mutual, AXA Equitable, and more. He is a sought-after speaker, appearing on Bloomberg Radio, Fox News, and CNNfn. and in financial publications like Bloomberg Online and Kiplinger’s Retirement Report. As founder of Golden Retirement, LLC, and Go2Income he is helping people make retirement plans that create dependable, spendable retirement income for a lifetime.
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