Most of us are very familiar with the “accumulation” phase of our financial lives. This is the time before retirement when we save and invest, and work to build up a nice sized chunk of money for “the future.” This is often referred to as climbing up a mountain.
During this time, various strategies and allocations may be made, in order to optimize your portfolio for the goals that you have set. But all of that changes when you retire. That’s because, rather than putting money into your savings, you are instead taking it out – and with no additional funds coming into your portfolio, you have to be extremely careful to find that fine line between funding your retirement lifestyle and not running out of money when you still need it. So, coming back down the retirement mountain can be complex.
Factors to Consider When Generating Retirement Income
In addition to the generation of a future income that is enough to get you through, there are some added factors that you need to consider for getting you safely down the mountainside. For example, depending on where you are drawing money from, there could be tax implications. This, in turn, could have a big impact on how much you are actually able to net.
As we age, we will typically incur higher health care costs. Whether these come by way of more frequent doctor visits, additional prescription medications – or both – this, too, is essential to plan ahead for.
On top of that, inflation can also rear its ugly head, rendering higher prices for the goods and services that you need in the future. So, if prices go up – but your income amount stays the same – you could find that you need to cut back and/or alter your lifestyle drastically going forward.
One of the biggest risks to retirement income, though, is longevity. In today’s world, it’s not uncommon to see more and more people living past the age of 100. With longer life spans today, there is the opportunity to spend more time doing the things you love – provided that you have enough income to sustain your lifestyle.
What makes longevity such as primary detriment, though, is the fact that living longer can expose you to all of the other potential risks – including inflation, market downturns, health care needs, and taxes – for a longer period of time.
How You Can Secure Guaranteed Income in Retirement
Because there is no way to determine just how long you will need income in retirement, it is essential to set up a guaranteed income stream that will last for the rest of your life. This can be accomplished by using annuities.
Annuities are designed to produce ongoing income for either a set period of time or alternatively for the remainder of the recipient’s lifetime. Depending on the type of annuity you have, you could also obtain some nice tax benefits, such as tax-deferred growth within the account, which can allow your funds to compound faster.
Not all annuities are the same, though, so it is essential that you have a thorough understanding of the different types, and how they work. Likewise, given the various riders that are available on some annuities, you could “customize” an annuity strategy that works the best for your particular circumstances and goals.
What is Your Retirement Distribution Strategy?
Even if retirement is still far off in your future, it is always best to plan for it sooner rather than later. This can allow more time to make any alterations to the plan if needed. It will also give you time to ask – and answer – some key questions about your retirement income needs, such as:
- How will your expenses in retirement differ from what they are now?
- What will your Required Minimum Distributions (RMD) be?
- When is the best time for you to start taking your Social Security retirement income benefits?
- How can you best ensure that income will last for the remainder of your life – regardless of what occurs in the market?
At Annuity Gator, we’re focused on offering annuity education to both consumers and financial advisors through our in-depth annuity reviews, as well as materials that discuss how different types of annuities work.
Our experts are available for one-on-one calls that can walk you through different annuities and how they may perform for you. So, if you have any questions, or you just want to learn more about how annuities work, feel free to reach out to us here.