While it could differ for some people, the three unexpected retirement income challenges that you could face in the future include:
Let’s take a look at each of these hurdles individually – as well as some potential solutions for addressing them.
One of the biggest income challenges for retirees is keeping up with inflation. As prices rise, it can be difficult, if not impossible, to continue purchasing items and services that you need – especially if the amount of your incoming cash flow remains the same.
It is estimated that over a 20-year period of time, income would need to double in order to just keep pace with the same lifestyle you have now. So, if you are generating $4,000 per month in income today, that would have to grow to $8,000.
During your working years, it is likely that you received regular raises from your employer and/or increased the price of items or services that you offered through a business. So, it only makes sense that your income must continue to rise after you retire.
Another big income-related challenge that retirees face – many unexpectedly – is taxes. While you are likely familiar with paying income tax, as well as tax on items and services that you purchase, and possibly even annual real estate and personal property taxes, people sometimes forget about this in retirement.
Depending on where you generate your retirement income and withdrawals from, you could face some significant taxation – which in turn can lessen the amount of money that you actually have available to spend on your living expenses.
For instance, funds that are inside of a traditional IRA (Individual Retirement Account) and traditional employer-sponsored retirement plans (such as a 401k) typically go into the account(s) pre-tax. Likewise, the funds in these types of accounts grow tax-deferred. Therefore, none of the money in traditional retirement accounts has yet been subject to taxes… but it will be! So, 100% of withdrawals from these accounts are usually taxable to you.
Today (in 2022), the top federal income tax rate is relatively low, standing at 37%. But this could change – and in the future, this rate is expected to go up. Over the past century or so, the top federal rate has fluctuated from a low of just 7% to a high of 94%, with forty-nine years being 70% or higher. With that in mind, it is essential to have a tax-reduction or elimination plan in place.
Top Federal Income Tax Rates 1913 – 2022
Source: Inside Gov (http://federal-tax-rates.insidegov.com/)
Another – and possibly the biggest – challenge for retirees today is longevity. With people living longer now (on average), retirement savings and income must stretch out for a longer period of time. This can be difficult, given that your portfolio will also still be faced with a long list of risks – such as stock market volatility and taxes – for a longer period of time, as well.
Because of this, longevity is often referred to as a “multiplier of all other financial risks.” But there are some ways that you can ensure that income will continue to flow in, regardless of how long you need it. One such option is through an annuity with a lifetime income benefit.
These financial vehicles can continue to pay out a known amount of income, no matter what is happening in the stock market, with interest rates, or even in the economy overall. But not all annuities are exactly the same, so it is important that you work with a financial professional who is well-versed in annuities, and who can help you with finding the right one for your specific objectives.
Do You Have All of the Bases Covered for a Secure – and Ongoing – Retirement Income Stream?
Having enough income to last through what could be a retirement of 20 or more years is crucial. So, if you don’t have one or more generators of secure, ongoing cash flow, it is essential that you set up a plan to do so.
At Annuity Gator, we specialize in creating retirement income plans so that people can focus more on enjoying retirement, and less on worrying about whether or not their assets will last as long as they need them to.
If you would like to set up a time to chat with an Annuity Gator retirement income specialist, give us a call at (888) 440-2468 or send us an email by going to our secure online contact form. We look forward to hearing from you.