Retriment Income
How Much of Your Retirement Should Become a Paycheck You Can't Outlive?
Retirement Changes the Math
While you’re working, a bad investment year can be unpleasant. You may have time to recover. When you’re retired and withdrawing money to live on, market losses can be more consequential because you may be selling investments while they’re down . That doesn’t mean you should avoid the stock market. It means we should ask:
How much of my retirement income do I want dependent upon the market – and how much would I rather know will be there?
Start With the Income You Already Have
Before recommending anything, let’s look at your existing sources of predictable income: Social Security, pensions, rental income if applicable, and other guaranteed income. Then compare that with the income you expect to need. If dependable income already comfortably covers essential expenses, wonderful. If it doesn’t, we have identified a potential gap.
How much dependable income would help me sleep better?
Creating Income You Can't Outlive
Certain annuities can convert a portion of retirement assets into a stream of income guaranteed according to the contract, including options designed to continue for life. But that doesn’t mean putting everything into an annuity. You may still need cash for emergencies, money for larger purchases, assets with growth potential, and money intended for your family. That’s why I prefer thinking in buckets rather than products. Some money may need to remain liquid. Some may be invested for growth. Some may be positioned for legacy. And some may be used to create dependable income.
Which is better for this money?
For people with traditional IRAs and other qualified retirement accounts, Required Minimum Distributions eventually become part of the equation. Rather than treating RMDs merely as an inconvenience, we can look at how those required distributions fit into your overall retirement-income strategy. In some circumstances, guaranteed-income products may play a role. The important point is that we don't examine one rule or one account in isolation. We look at the whole picture.
A Roth conversion can be valuable because qualified Roth distributions can ultimately be tax-free and Roth IRAs generally don't impose lifetime RMDs on the original owner under current federal rules. But converting traditional IRA money can create taxable income today. So the question isn't 'Are Roth conversions good?' The question is: Does paying tax today potentially improve my situation tomorrow? That's what I call doing the tax math. We can help examine the insurance and retirement-planning considerations, while coordinating tax decisions with your qualified tax professional.
I don't believe every retirement dollar should be guaranteed. I also don't believe every retirement dollar needs to be exposed to market risk. If part of your retirement income is guaranteed regardless of what happens in the stock market, that may give you more flexibility in deciding how other assets are invested. Sometimes thoughtful planning allows room for safe AND growth.
Bring me the numbers. What comes in every month? What goes out? What income is guaranteed? What depends on investments? What do you want your retirement to look like? How much of your retirement should become a paycheck you can't outlive? Only after answering that do we talk about products.