You're
trying to stream your favorite show, but there's the constant drumbeat of bad
economic news.
"A recession is coming."
"The markets dropped."
"Inflation is the highest
it's ever been."
You're so close to retirement you can taste it.
Golfing,
taking that cruise, spending more time with the grandkids. The excitement is
like a ride in a convertible on a warm sunny day, with the feeling that you
could go anywhere.
Until
your retirement daydream grinds to a screeching halt as you face the reality of
uncomfortable changes to how you receive your income when you're no longer
working.
You're
on the brink of retirement, but the threats of a recession and bear markets,
not to mention inflation, seem like they're constantly looming over you. Will
your savings be able to withstand the shock of a sudden downturn in the
economy, and will you be able to rely on a steady income stream throughout your
retirement?
As you know, inflation can
eat up a lot of purchasing power. The U.S. saw a
record high for inflation in 2021, with an average rate of 4.7%.1 It's not clear when it will return to pre-pandemic
levels. Or IF it will at all. Your retirement income needs to keep pace with
prices rising throughout your senior years.
You're
probably used to receiving a consistent paycheck on a regular basis. It helps
relieve the anxiety of paying bills when the market's rocky. But you know that
once you stop working and retire that you'll lose your regular income stream.
Times like these may make you even more concerned about whether you'll be able
to make your money last as long as it needs to.
But what if you could create a reliable monthly cash flow
even when you're no longer working? One that gives you the confidence of
knowing you'll be able to pay your bills even if the market's crashing. A
recession or bear market at the wrong time can be a shock to your retirement
income. But there are ways you can
add some "shock absorbers" to your retirement plan, just as the smartest
investors do.
This guide is designed for workers just like you who want a reliable stream of monthly income that
helps cushion the blow when markets are dropping, so that you can retire
confidently.
You might be asking
yourself questions such as:
·
What happens to my retirement income when the stock market
drops?
·
How will I maintain my standard of living in my senior
years when the economy struggles?
·
Is there anything I can do to help stabilize my cash flow,
no matter what's happening to my savings and investments?
·
How do I handle the uncertain future without giving up too
much in the here-and-now?
·
Will my spouse be able to maintain the same standard of
living when I'm gone?
If any
of these strike a chord with you, keep reading…
RETIREMENT
INCOME SHOCK ABSORBER #1:
Table of Contents
·
Shore Up Your Social Security
·
Maximize Your Pension Benefits
·
Turn On Your Own Income Stream
SHORE UP YOUR
SOCIAL SECURITY
Social Security is a key component of retirement for most
Americans - close to 9 out of 10 people age 65 and older receive benefits.2 Unfortunately, the information in popular culture is
often misinformed, misleading, or downright wrong.
You
may not even be sure how Social Security works. If you look on your statement,
you'll see your Primary Insurance Amount (PIA) that will be paid out monthly
once you reach your full retirement age (FRA).
For
most people reading this, FRA is age 67. You can start claiming at age 62, but
your payment is permanently reduced for each month you take before your FRA. On
the other hand, if you delay claiming past your FRA, you get a permanent raise
in your benefits each month you delay up to age 70. If you live a long time,
you may be better off delaying until 70.
If you're married, you
also need to take into account spousal benefits. When
there's a big difference in the PIA between two earners, the higher earner
should almost always delay until age 70. The lower earner may be able to claim
earlier than their FRA so that there's some income coming in, depending on the
circumstances.
Critical questions to ask:
·
Do I know the "break-even point" where delaying my claim to
obtain a higher payment gives me more money than claiming earlier and being
paid longer?
·
Is it clear how my benefits, my spouse's benefits, and
potentially an ex-spouse's benefits can be used to maximize our lifetime
payout?
·
How should my spouse and I coordinate filing our claims?
·
Have I discussed my Social Security claiming strategy with
a financial professional?
RETIREMENT
INCOME SHOCK ABSORBER #2:
MAXIMIZE YOUR
PENSION BENEFITS
Though many Americans no longer have access to a pension
income from an employer, some still do. If you're one of the lucky 25% of
workers with access to a defined benefit plan, certain strategies can help you
get even more from your pension.3
Many
pensions are calculated as a formula based on income and employment period with
the company. You may want to plan to stay an additional year or two and take a
promotion with more income to recalculate the formula that your company uses.
When
it comes to the payout, you also likely have some choices to make. The amount
needs to cover your entire lifetime, not just the next 10 years or so. Some
companies adjust the pension for inflation, but not all do. The largest amount
may seem attractive, but does it endanger your spouse's finances if they
outlive you?
Critical questions to ask:
·
How does the pension affect my Social Security payment (or
my spouse's)?
·
Am I clear on whether the pension will adjust for inflation
during my lifetime?
·
Is there any way I can increase how much the formula will
give me?
·
Is the company providing the pension projected to be in
good financial health for the next few decades?
·
Have I discussed my pension plan with a financial
professional?
RETIREMENT
INCOME SHOCK ABSORBER #3:
TURN ON YOUR
OWN INCOME STREAM
While
you're working, you're building your wealth. But when you retire, you begin
distributing money instead of accumulating it. There are a variety of methods
for turning on a spigot that you can rely on no matter what the stock market is
doing, and one of these is to purchase an annuity.
While you don't want to
tie up all your assets, an annuity can provide a reliable stream of income
throughout retirement. No matter what the markets are
doing - crashing and burning, going sideways, or spinning in circles - an
annuity will continue to pay out your monthly amount.
Annuities
are not right for everyone. However, they've come a long way from the ones your
parents might have had. Become familiar with the specifics of your annuity,
such as building your understanding of the surrender period and what you need
to do to make sure that you receive what you expect every month.
Critical questions to ask:
·
Do I understand how my portfolio of assets will generate
regular cash flow?
·
What happens to my retirement income when markets get
rough?
·
Are there other techniques for building a steady income
stream that I should consider?
·
Have I discussed my cash flow plans in retirement with a
financial professional?
Sources
1. https://www.usinflationcalculator.com/inflation/current-inflation-rates/
2. https://www.ssa.gov/policy/docs/ssb/v77n2/v77n2p1.html
3. https://sgp.fas.org/crs/misc/R43439.pdf
Risk Disclosure: Investing
involves risk including the potential loss of principal. No investment strategy
can guarantee a profit or protect against loss in periods of declining values.
Past performance does not guarantee future results
This material is for information purposes only and is not intended as an offer or solicitation with respect to the purchase or sale of any security. The content is developed from sources believed to be providing accurate information; no warranty, expressed or implied, is made regarding accuracy, adequacy, completeness, legality, reliability, or usefulness of any information. Consult your financial professional before making any investment decision. For illustrative use only.
Securities offered through Kestra Investment Services, LLC (Kestra IS), member FINRA/SIPC. Investment Advisory Services offered through Kestra Advisory Services, LLC (Kestra AS), an affiliate of Kestra IS or Beacon Financial Group. Beacon Financial Group is a member firm of PartnersFinancial. Beacon Financial Group is affiliated with Kestra IS and Kestra AS. Kestra IS and Kestra AS are not affiliated with PartnersFinancial. Neither Kestra IS nor its affiliates provide legal or tax advice. The opinions expressed in this commentary are those of the author and may not necessarily reflect those held by Kestra Investment Services, LLC or Kestra Advisory Services, LLC. Kestra Disclosures Beacon Disclosures