How To Create Income From Your Retirement Savings

For years you’ve diligently contributed to your retirement savings. You’ve funneled a portion of your paycheck into your 401(k), allocated money each month to personal retirement funds, and paid Social Security and Medicare taxes. But did you ever really picture the day when you would be withdrawing funds as opposed to contributing them?

Retirement brings about many changes, and one of the main ones is the way you obtain income. Your cash flow will be different when you retire and many new retirees need guidance in how to navigate that change. 

You have money tied up in different accounts, but how do you actually use it in your day-to-day life?

Avenue 1: Social Security

Social Security supplements about 40% of income for today’s retirees. With nearly half of retiree’s income tied to Social Security, it is important to know how it operates and will impact you. 

Each paycheck you received throughout your career, 12.4% was taken out for Medicare and Social Security: 6.2% paid by you and 6.2% paid by your employer. Over the course of your working life, you have contributed a lot to Social Security and when you retire, it is time to take advantage of that benefit. 

In order to begin the enrollment process, head on over to the Social Security Administration website, call their office or set up an in-person visit. Once you enroll, you will receive monthly checks throughout your retirement. 

The amount you receive is dependent upon your work record and the age you begin collecting your benefits. Traditionally there are three options for enrolling: early (at 62), on time (full retirement age) and delayed (at 70). Deciding when to enroll is an important conversation as it affects the total amount and length of your benefit. Here are some topics to consider that may help you decide when it is right to enroll for you:

  • Do you have the option for spousal benefits? Married couples need to make the most out of their combined Social Security benefit. Often that means one spouse taking their benefits early and the other delaying their own. Speak with your financial advisor for more personalized advice in your case.
  • Do you need the income right away? Assess your financial situation and think about how you will obtain income for retirement outside of Social Security. If you find that you need the benefit to maintain your quality of life, consider taking it earlier. 
  • How is your health? Some people want to take their Social Security benefits when they are healthy enough to enjoy them. Take a serious look at your health and decide if it makes sense for you to collect the benefit early or not. 

Avenue #2: Pension

While pension plans aren’t as common for new workers today, many retirees now do have pension plans to help supplement their retirement income. The trick with your pension is electing the right payout option for you. Each election offers the recipient a monthly check, but the amount of that check depends on the type of option you choose. I’d like to go over the basics for you.

Single life

Many people are drawn to a single life annuity because it offers the highest monthly payout of all the options. This selection does, however, only apply to you. So in the case that you are married or have dependents as soon as you pass away, the monthly payments stop. This can prove difficult for married couples where one spouse has a pension and the other does not. When making this decision be sure to factor in your other streams of retirement income and your family when deciding if this is the right option for you. 

Joint and Survivor

These plans are often the most popular choice and usually come in three forms: 50%, 75%, or 100%. Your choice will ultimately decide how much of your benefit your spouse or dependent will receive if you pass away. Let’s take the example of a 50% Joint and Survivor benefit. This selection will offer the highest monthly payout (with each step above, the monthly payments become less) and once you pass, your spouse will receive 50% of the total benefit for the rest of their lives.

Period Certain Option

These plans have a built-in payout system for a set number of years. Many people who choose this option combine it with single life which looks like, single life annuity with 10 years. If one spouse elects this option, they would receive the full benefit for a minimum of 10 years and extend throughout their lives. If they pass away 5 years into the 10-year period, the full payments will still be issued to the surviving spouse for the remaining 5 years. 

When deciding which pension payout option is right for you to be sure you evaluate all of your streams of income and have open, honest conversations with your spouse and family to come up with a solution that makes the most sense for you all. 

Avenue 3: Personal Savings

Personal savings come in many forms: tax-deferred retirement accounts (401(k), other workplace plans, Traditional IRA, Health Savings Account), a Roth IRA, and personal investments. Each of these items can be used for regular income during retirement. Most tax-deferred plans require you to take required minimum distributions (RMDs) when you turn 70 ½. In terms of your investment portfolio, many experts advise withdrawing 3-4% each month to use for your income and other expenses. But that is just an estimate, in order to get the best information for you, be sure to schedule an appointment. 

Your Financial Advisor Can Help

The process of getting your income in retirement can seem daunting, but we love helping people figure out the right withdrawal plan for their lifestyle. We would love to speak with you about your goals as you near (or steadily in) retirement. Schedule your call with us today!

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