One of the most important issues people face as they prepare for retirement is how to position their investments so that they can live their retirement years to the fullest.
We often find that people are concerned about not having enough money in retirement, yet they don’t always get the difference between running out of money versus running out of income. The latter is the bigger threat. It goes like this: When we’re working, we can withstand the loss of a paycheck, but the loss of our job is more devastating since we wouldn’t have anything to live on.
This is why it’s so important to have a retirement income plan, because you know more money is coming in even if something unforeseen happens to your investments. An income plan will also offset longevity risk as lifespans are on the rise.
In my book, The Five Crossroads: How The Choices We Make Affect Our Retirement Journey, we outline how three legs of a stool each represents one important aspect of your retirement income – the three legs being Social Security benefits, pensions and tax-deferred accounts like IRAs, 401(k)s, or other defined contribution plans you may have participated in to help fund your retirement.
Based on your age, health, income and other circumstances, there are several strategies in each category to help build the overall efficiency of your three-legged stool.
While you don’t want to rely solely on Social Security income in retirement, it’s still important to make the most of your options. A retirement specialist can help determine the best times to file for Social Security benefits, depending on your needs, whether you plan to continue to work in retirement and what options are available with spousal benefits.
In addition, at what age you choose to file can also determine if you receive a smaller or larger benefit. There are more than 500 options available but only a few will apply to your situation.
With regards to a pension, you’ll want to consider options based on the purpose of the income you want in retirement. Will it be used just for you, together with a spouse, or to support a surviving spouse if the pension holder passes away first?
Proper planning is also important when it comes to your IRA. In most cases, you can’t withdraw money from tax-deferred accounts without penalties until age 59½ and you must begin taking Required Minimum Distributions (RMDs) whether you need it or not at age 70½.
As we sometimes say, “This makes the IRS your senior partner in ownership of your IRA, 401(k) or other similar accounts.” But there are ways to make sure you withdraw your money earlier and tax-efficiently to avoid paying more in taxes than necessary. You can take back control, so to speak, from the government.
With each leg of the stool, it’s important to make the most of your options to build a solid and sturdy retirement income plan that can potentially help you live a comfortable lifestyle. This means taking a step back and looking at the big picture.
At Eric Scott Financial, we think one of the most valuable ways you can do this is with the help of a retirement guide. Call us at 435.773.9444 to begin the retirement income planning process or to refine the plan you already have in place!
As one of the main historical characters in The Five Crossroads says: “Working with a guide who understands that big picture can help you know when it’s right to file for your Social Security benefits, how to best set up your pension, and how to arrange and use your investments so they help and support each other. Just as three legs on a stool must be measured and spaced properly to support the weight required, so must your retirement income sources be measured and properly used.”