The DIY Pension Guide: 5 Steps To Building Your Own Pension Plan

There’s nothing like a little elbow grease and ingenuity to tackle those pesky repair projects. Some of the funniest do-it-yourself projects we’ve seen include: a broken sink pedestal repaired with a leaning stack of books, busted car headlights replaced with two flashlights taped to the car hood, and a missing chair leg replaced with a bottle of Jack Daniels – empty, of course.

People get pretty creative when they’re trying to save a few bucks to solve a problem. One of the biggest problems people face today is a pensionless retirement. As with anything, there’s the old way to do things and the new way, and then – there’s the way that works for you. Here are 5 steps and handy tips so you can successfully tackle the job yourself.  

STEP #1: KNOW YOUR LIFE EXPECTANCY

The Old Way: Back in the 1930s when the Social Security program was first created, life expectancy at birth was only 58 for men and 62 for women, yet retirement age was set for 65. It was designed to be insurance for the American worker against the risk of living too long. Indeed, the first person to ever receive Social Security was Ida May Fuller, and she lived to be 100 years old.

The New Way: Today, more retirees fear they will outlive their savings more than they fear death. We still think of age 65 as the time of retirement, yet the average man reaching 65 today can expect to live another 19 years and the average woman comes closer to living another 22 years.  One out of every four 65-year olds will live past 90, and if you make it to age 85, then your life expectancy increases to 90.7.

Your Way: People retiring today tend to greatly underestimate the number of years that they will live. What’s more, there is also a correlation between wealth and life expectancy. New research from Jama Internal Medicine shows that if you earn a higher than average salary,  then you could live up to 20 years longer than the average.

STEP #2: UNDERSTAND HOW MUCH OF YOUR INCOME SOCIAL SECURITY WILL REPLACE

The Old Way: Social Security was designed to replace about 40 percent of your pre-retirement wages. It used to be a tax-free income paid out to American workers. Then in 1983, the Social Security Amendment Act was passed, so now recipients who earn over a certain income threshold are taxed on a portion of their benefit.

The New Way: In 2013, 64 percent of retired workers relied on Social Security for at least 50 percent of their retirement income. In 2016, the average income paid to a retired worker was $1,341 per month, or $16,092 a year, however, payments can vary widely depending on your work history and other “earned income” as defined by Social Security.

Your Way: If you plan to work during retirement, you may want to wait to claim your Social Security benefit for as long as possible, otherwise, you’ll be penalized. If you are under full retirement age in 2017, you’ll be penalized $1 for every $2 that you earn above the income limit of $16,920. If you and your spouse file a joint tax return and you have a combined income that is over $34,000, then up to 85 percent of your benefits may be taxed, whether you’re working or not.

STEP #3: BE VIGILANT ABOUT SAVING

The Old Way: It used to be that American workers were rewarded for their hard years of labor with defined-benefit pension plans that paid out a reliable income during retirement. In 1920, 84 percent of all railroad workers were covered by pensions, and even during the Great Depression, the number of company pension plans increased by 15 percent.

The New Way: As people started living longer, companies could no longer afford such a long-term liability. Defined-benefit pension plans have been declining since 1984, and during the Great Recession of 2008, the number of pensions at risk within failing companies more than tripled.

Your Way: Most people saving for retirement today have to rely on 401(k) plans and IRAs. Only 22 percent of full-time private-sector workers still receive defined benefit pensions, and even government pension plans are relying more on the defined-contribution model for their Thrift Savings Plan (TSP), which function just like a 401(k). This is a new reality, yet 71 percent of Americans aren’t saving enough.

STEP #4: REMEMBER YOUR SPOUSE AND FAMILY

The Old Way: The traditional defined-benefit pension plans provided the employee with a set income that represented a portion of their earnings when they were working. This income lasted for as long as they lived, but once they passed away, the money was gone and nothing went to the family. Some pensions allow workers to elect a smaller amount of income in exchange for an income continuation plan for their spouse.

The New Way: Today’s workers retiring without a pension need to find some way to turn their 401(k) or IRA or investment portfolio into a regular income stream. Annuities are the only way to do this to get the same guarantees once provided by pensions.

Your Way: Unlike the old pensions, annuities today can be customized to fit your lifestyle. They can be designed to pay out for one life or two, and you can even get an annuity that pays out to your family should you meet an untimely demise.

STEP #5: GET YOURSELF AN INCOME

The Old Way: It used to be that workers retired with a pension amount that represented a portion of their income, plus they had their Social Security check as insurance against living too long. Any investments or savings they had in the stock market were like icing on the cake.

The New Way: As defined-benefit pension plans became a thing of the past, more and more people had to rely on their investments and 401(k) plans for an income. The 4 Percent Rule was invented in the 1990s by a financial planner from California in answer to the question, how much money can I spend during retirement? Then along came the early 2000 recession and the financial crisis of 2008, and experts now say that the 4 percent rule is no longer safe.

Your Way: With today’s low yields on safe money investments such as bonds and bank CDs, securing a retirement income using an annuity has become even more important. A lot of people misunderstand annuities, some even say they hate them. What they are is a simple way to secure a retirement income without a pension.

If you have questions about how to choose the right annuity to create your retirement pension, then we’re here to help. Annuity Gator is the number one provider of independent annuity reviews in the USA. We’re independent, which means we don’t work for an insurance company or investment bank, nor are we a broker. We’re annuity experts who can help you shop around and compare the benefits and features of today’s solutions to help make sure you get the right annuity for your retirement plan. Fill out our form or give us a call at (888) 440-2468 today.

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