Income Planningsocial security, pensions, VA pensions, 401(k) and IRA’s, and investments and savings.
Income Planning is an essential part of retirement but is often times set aside due to other life priorities. Most people consider contributing to their 401(k) plan all the “income planning” they need. Planning for your income in retirement requires much more attention than it receives and should be addressed early in your career. Typically, retirees are told they should plan to retire with at least 60-70% of their pre-retirement income; however, most retirees know they really need about 100% of their pre-retirement income to stay comfortable. There are different sources to consider when developing a retirement plan such as social security, defined benefit pensions, VA pensions, 401(k) plans and IRA’s and investments and savings.
Social Security is the most common source of lifetime income; however, under a normal situation, it can’t be elected until age 62 and that amount will be at a reduced rate (25%) for the rest of your life.
The longer you can hold off taking Social Security retirement income will ensure larger amounts in the long run. For example, if you have an entitled benefit of $2,000.00 per month at Full Retirement Age “FRA”, then your benefit at age 62 would be $1,500.00. If you waited until age 70, your benefit would be $2,640.00. Any year you choose to defer after FRA, you will receive an 8% credit therefore drastically increasing your income amount.
The Social Security program is the topic of many discussions in terms of spending cuts; this leads many people to start withdrawing their benefits as soon as possible. It is important to calculate where your breakeven point would be on those three options to ensure you are receiving enough income for the rest of your life.
Some companies offer a defined benefit pension plan that provides retirement income. This income is based upon your pre-retirement income and anything else you contribute to the plan and is designed to last for the life of the employee.
There are several options to choose from when selecting this type of retirement plan that may convert your retirement income accounts into lifetime income streams. More than likely, your retirement income planning will include converting your assets into income streams.
If you are the age of 65 or older, have served the military during wartime, and were discharged honorably, you qualify for a war veterans pension benefit; you should check this benefit out and see how much of the VA pension belongs to you.
401(k)’s and IRA’s
Today there are 401(k)’s and IRA’s that generally give tax-deferred benefits which enhance your monthly contributions. Additionally, a ROTH IRA offers the tax benefit of paying taxes upfront, thereby relinquishing tax liability at the time of withdrawal. The best way to make your 401(k) or IRA last the length of your retirement of approximately 33 years is to plan on withdrawing no more than 4% per year.
Investments and Savings
It is generally a good idea to keep some of your savings outside of tax-deferred retirement accounts. I often say it is important to save and much more important to learn how to save correctly. As equivalent to ensuring diversification inside your investment options, I would recommend diversifying your tax liabilities before retirement so that you have options. You wouldn’t want all of your assets in a single stock due to default risk, just as you wouldn’t want to allow the government to determine how much of your money is actually yours, aka- Tax Risk.
Our Process & Core Services
The foundation of your retirement! As essential as your retirement income stream is, AMG-Inc. has worked diligently to become respected as one of the leading firms in advanced income planning among its peers.