Social Security benefits play a crucial role in ensuring a stable and secure retirement. For many retirees, understanding how to maximize these benefits is essential for financial well-being. This comprehensive guide will explore various strategies to help you get the most out of your Social Security benefits, ensuring a safe and secure retirement. We’ll cover the basics of Social Security, when to claim your benefits, secure strategies to maximize them, common pitfalls to avoid, and how to integrate Social Security with other income sources.

Understanding Social Security

Social Security benefits are designed to provide financial support during retirement. The amount you receive depends on your earnings history and the age at which you claim your benefits. The Social Security Administration (SSA) calculates your benefit based on your highest 35 years of earnings. Understanding how your benefits are calculated is the first step in maximizing them.

When to Claim Social Security

One of the most critical decisions you’ll make is when to start claiming your Social Security benefits. You can begin claiming as early as age 62, but doing so will permanently reduce your monthly benefit. Conversely, delaying your claim past your full retirement age (FRA) increases your benefit by 8% per year until age 70.

Full Retirement Age vs. Early vs. Delayed Benefits

• Full Retirement Age (FRA): Your FRA is based on your birth year. For those born between 1943 and 1954, it’s 66. For those born in 1960 or later, it’s 67.
• Early Benefits: Claiming at age 62 reduces your monthly benefit by about 25-30%.
• Delayed Benefits: Each year you delay past your FRA increases your benefit by 8%, up to age 70.

Secure Strategies to Maximize Benefits

To maximize your Social Security benefits securely, consider the following strategies:

Spousal Benefits

Spousal benefits can be a valuable part of your Social Security strategy. If you’re married, you can claim either your own benefit or up to 50% of your spouse’s benefit, whichever is higher. This can be particularly beneficial if one spouse has significantly lower earnings.

Maximizing Survivor Benefits

If you’re widowed, you can claim survivor benefits as early as age 60 (or 50 if disabled). Survivor benefits can be up to 100% of your deceased spouse’s benefit. It’s crucial to understand the rules and optimize the timing to ensure you receive the highest possible benefit. Survivor benefits are designed to provide financial support to widows and widowers based on their deceased spouse’s earnings. Here are the key rules and strategies to maximize these benefits:

Eligibility for Survivor Benefits

Age Requirements:

• Early Benefits: You can start receiving survivor benefits as early as age 60.
• Disability Exception: If you are disabled, you can begin receiving benefits as early as age 50.
• Caring for a Child: If you are caring for a child under age 16 or who is disabled, you can receive benefits at any age.
• Marriage Duration: To qualify, your marriage must have lasted at least nine months unless the death was accidental or occurred in the line of duty (military).

Social Security Benefit Amounts

• Full Benefits: If you wait until your full retirement age (FRA), you can receive 100% of your deceased spouse’s benefit amount.
• Reduced Benefits: If you start claiming before your FRA, your benefit amount will be reduced:
• Age 60 to FRA: The benefit will be reduced to as low as 71.5% of the deceased spouse’s benefit if claimed at age 60.
• Between 60 and FRA: The reduction is less severe the closer you are to FRA.

Maximizing Strategies

• Delay Benefits for Higher Payments: If financially feasible, delaying survivor benefits until your FRA ensures you receive the maximum possible amount.
• Consider Your Own Benefits: If you qualify for benefits based on your own earnings, compare the amounts. You can switch from survivor benefits to your own retirement benefits later if your own benefits would be higher.
• Work and Benefits: If you are under FRA and continue to work while receiving survivor benefits, your benefits may be reduced if your earnings exceed certain limits. Once you reach FRA, your earnings do not affect your survivor benefits.

Coordination with Your Own Social Security Benefits

• Switching Benefits: You can start with one type of benefit (e.g., survivor benefits) and switch to another (e.g., your own retirement benefits) at a later time if it results in a higher overall benefit.

Example Strategy:

• Age 60: Start receiving reduced survivor benefits.
• Age 70: Switch to your own retirement benefits, which will have grown due to delayed retirement credits.

Special Considerations

• Remarriage: Remarrying before age 60 will disqualify you from receiving survivor benefits based on your deceased spouse’s record. If you remarry after age 60, you can still receive survivor benefits.
• Government Pension Offset (GPO): If you receive a pension from a federal, state, or local government based on work where you did not pay Social Security taxes, your survivor benefits may be reduced.

Additional Tips

• Understand Your FRA: Know your FRA for survivor benefits, as it may differ from your FRA for retirement benefits.
• Plan for Long-Term Needs: Consider your long-term financial needs and health prospects when deciding when to claim survivor benefits.
• Seek Professional Advice: Consulting a financial planner can help you navigate the complexities and make the most informed decision based on your unique situation.

Impact of Continuing to Work

If you continue to work while receiving Social Security benefits before reaching your FRA, your benefits may be temporarily reduced. However, these reductions are not permanent. Once you reach your FRA, the SSA will recalculate your benefit to give you credit for the months when benefits were withheld.

Avoiding Common Pitfalls

To secure your retirement, avoid these common Social Security pitfalls:

Timing and Claiming Mistakes

One of the biggest mistakes retirees make is claiming Social Security benefits too early without fully understanding the long-term implications. Claiming Social Security as soon as you become eligible at age 62 might seem attractive, especially if you want to retire early. However, doing so can permanently reduce your monthly benefit by up to 30%. This reduction affects not just your current income but also your financial stability throughout retirement.

Understanding the Impact of Early Claiming

When you claim Social Security benefits before reaching your Full Retirement Age (FRA), which is 66 or 67 depending on your birth year, you receive a reduced benefit for the rest of your life. Here’s a breakdown of how early claiming impacts your benefits:

• Age 62: You can claim benefits at this age, but your monthly benefit will be reduced by about 25-30%.
• Full Retirement Age (FRA): Claiming at FRA (66 or 67) entitles you to 100% of your calculated benefits.
• Delaying Benefits: For each year you delay claiming past your FRA until age 70, your benefit increases by about 8%. This means you could receive up to 132% of your benefit if you wait until age 70.

Strategies to Avoid Early Claiming Mistakes

If you have the financial resources and want to retire before your FRA, it’s crucial to tap into other assets to subsidize the period until you start receiving full Social Security benefits. This strategy not only provides you with the income you need but also results in a significant increase in your monthly Social Security benefits when you do start claiming them.

Using Annuities to Bridge the Gap

Annuities are a popular financial vehicle that can help provide a steady income stream if you decide to retire before reaching your FRA. Here’s how you can use annuities to your advantage:

• Purchase an Immediate Annuity: An immediate annuity provides you with guaranteed income payments starting immediately after you make a lump-sum investment. This income can cover your expenses until you decide to start claiming Social Security benefits.
• Deferred Annuities: You can also opt for a deferred annuity, which begins payments at a future date. This can be particularly useful if you want to delay claiming Social Security benefits for several years to maximize your monthly benefit.
• Bridge the Income Gap: By using the income from an annuity, you can retire early without having to claim Social Security benefits right away. This allows your Social Security benefits to grow, ensuring you receive a higher monthly benefit when you finally start claiming.

Example Scenario

Imagine you’re considering retirement at age 62, but you know that claiming Social Security benefits at this age will reduce your monthly benefit by 30%. Instead of claiming early, you decide to use other retirement savings and purchase an immediate annuity or use income from an annuity you purchased years ago to cover your living expenses until you reach age 70. By doing this, you allow your Social Security benefits to grow by 8% each year beyond your FRA. When you start claiming at age 70, you receive 132% of your full benefit, significantly enhancing your financial security in the long term.

Financial Considerations

Before deciding to use annuities or other assets to delay claiming Social Security benefits, consider the following:

• Current Financial Needs: Assess your immediate financial needs and determine if you have sufficient savings or retirement accounts to cover expenses.
• Health Prospects: If you have health concerns or a shorter life expectancy, it might make sense to claim Social Security benefits earlier.
• Longevity Planning: For those with a longer life expectancy, delaying Social Security can provide substantial financial benefits over the long term.

Expert Advice

Consulting with a financial advisor can help you develop a personalized strategy that aligns with your financial goals and retirement plans. An advisor can help you evaluate the pros and cons of using annuities or other investment vehicles to bridge the income gap and maximize your Social Security benefits.

Misunderstanding Rules and Regulations

Social Security rules can be complex. Misunderstanding these rules can lead to missed opportunities and reduced benefits. It’s vital to stay informed about changes in Social Security regulations and how they affect your benefits.

Ensuring Compliance with Social Security Regulations

Failing to comply with Social Security regulations can result in penalties and reduced benefits. Ensure you understand and follow all the rules regarding earnings limits, tax implications, and reporting requirements.

Integrating Social Security with Other Secure Income Sources

A secure retirement plan integrates Social Security with other reliable income sources such as annuities, life insurance, and pensions. Here’s how you can balance these sources effectively:

Annuities and Social Security

Annuities can provide a steady stream of income in retirement, complementing your Social Security benefits. Fixed annuities offer guaranteed payments, providing financial security regardless of market conditions.

Life Insurance and Social Security

Life insurance can protect your family financially and provide an additional income source in retirement. Policies like whole life or universal life insurance can build cash value, which you can access if needed.

Balancing Pensions and Other Retirement Income

If you have a pension, it’s important to understand how it interacts with your Social Security benefits. Some pensions may reduce your Social Security benefits through the Windfall Elimination Provision (WEP) or the Government Pension Offset (GPO). Plan accordingly to avoid unexpected reductions.

Case Studies and Examples

Real-Life Scenarios
Consider John and Mary, a retired couple. John has a higher earning history, and Mary worked part-time. By delaying John’s benefits until age 70 and claiming spousal benefits for Mary at her FRA, they maximize their monthly income while ensuring long-term financial security.

Safe Approaches Taken by Successful Retirees

Many successful retirees focus on delaying benefits and integrating Social Security with other income sources. They avoid early claiming and ensure they understand the implications of their decisions on long-term financial stability.

Expert Tips and Advice

Insights from Financial Planners
Financial planners often recommend delaying Social Security benefits to increase monthly payments. They also suggest considering life expectancy, health status, and other retirement income sources when making this decision.

Ensuring Financial Security
To ensure financial security, diversify your income sources, stay informed about Social Security rules, and consider consulting a financial advisor. An advisor can help you create a comprehensive plan that maximizes your benefits and secures your retirement.

Conclusion
Maximizing your Social Security benefits is essential for a safe and secure retirement. By understanding how benefits are calculated, carefully timing your claims, and integrating Social Security with other income sources, you can ensure financial stability. Avoid common pitfalls, stay informed about regulations, and consider consulting a financial advisor to optimize your strategy.

Additional Resources
Social Security Administration – Official SSA website for comprehensive information and tools.
Retirement Calculators – SSA’s retirement estimator tool.

For personalized advice, consult with a financial expert. Check out our “Find a Financial Professional” section to get in touch. For a personal referral to an independent, licensed advisor, call us at 877-476-9723 or contact us here to schedule your first appointment.

Authored by Brent Meyer, founder and president of SafeMoney.com, with over 20 years of experience in retirement planning and annuities. Learn more about my extensive background and expertise here

The post Maximizing Social Security Benefits first appeared on SafeMoney.com.

This question is crucial for retirees. After all, retirement can last for 30 years or more, and mistakes can lead to significant financial complications.

In previous discussions, we’ve highlighted how income planning differs from investment planning, particularly with its emphasis on generating monthly income. Unlike the working years, when accumulating assets and replenishing them with employment income is possible, retirement is a phase of “distribution,” where we rely on our nest egg for income. Seniors don’t have the luxury of replenishing their savings through employment. For this reason, among others, focusing on retirement income is paramount.

Here’s why income should take precedence over assets in retirement planning and why this approach might benefit your planning strategy.

1. Income Ensures a More Efficient Planning Framework

Income, as it pertains to cash flow, allows for more efficient financial planning. While income is a well-understood component of retirement finances, cash flow management is equally crucial. Cash flow management involves using income streams to cover retirement expenses. This includes:

• Diverse Income Sources: Retirement plan distributions, Social Security benefits, guaranteed pension payments, annuity payouts, and part-time employment income.
• Income Timing: Effectively managing when money is received from various income sources and using it to pay bills and expenses punctually.
• Expense Management: Ensuring adequate funds for various retirement expenses, including fixed monthly costs, discretionary spending like vacations, and unexpected emergencies.

By relating income to expenses, focusing on monthly income can enhance planning efficiency. Nobel laureate Robert C. Merton points out that in the current retirement planning landscape, where many depend on 401(k)s and other defined-contribution plans, decision-making is often influenced by behavioral biases.

When retirement planning emphasizes assets, it prioritizes asset values and investment returns, which are distinct from monthly income. This difference complicates the setting of cash-flow goals and the assessment of their achievability.

2. Income Aligns Better with Retirement Spending Goals

Forecasting retirement spending is another essential aspect of planning. This involves estimating future expenses and ensuring sufficient funds to cover them. Unlike the working years, retirement introduces new financial priorities and risks, with income uncertainty being a primary concern. This is the risk of outliving your money.

When we consider Social Security benefits or pension distributions, we speak in terms of income. Similarly, when discussing spending objectives, we focus on income—what amounts will be needed to cover various expenses. In contrast, when discussing 401(k) plans or other investment vehicles, we talk in terms of net worth and asset growth.

Because monthly income is more directly tied to specific spending goals in retirement, it serves as a more tangible and practical planning marker. It allows retirees to set clear objectives and measure their progress in meeting their financial needs.

3. Income Creates a Better Framework for Managing Retirement Finances

Most retirees rely on multiple income sources. According to the Social Security Administration, Americans aged 65 and older receive the majority of their income from four primary sources. If a retirement portfolio is one of these income-generating vehicles, making prudent investment decisions is crucial.

Dr. Merton also notes that investment decisions are often based on emotional biases rather than solid, objective analysis. Prioritizing income as a retirement goal can bring clarity to financial planning. It allows retirees to identify potential income gaps and determine the best solutions to fill those gaps. In contrast, focusing primarily on asset values can lead to less disciplined decision-making.

For example, in a downturn, investors might be tempted to sell off assets to avoid further losses. However, this can result in realized losses and diminished future income. Maintaining a focus on generating reliable income helps prevent such emotionally-driven decisions, promoting a more stable and secure retirement strategy.

Implementing an Income-Focused Retirement Strategy

How do you know if your current retirement strategy prioritizes income sufficiently? At SafeMoney.com, we connect you with experienced financial professionals who can assess your strategy and suggest improvements to help you achieve your goals.

By focusing on income, you can create a more resilient and adaptable retirement plan. This approach helps ensure that you have the necessary funds to cover your expenses, regardless of market conditions.

Exploring Different Income Sources

To effectively manage retirement income, it’s essential to diversify income sources. This can include:

• Annuities: Fixed annuities, immediate annuities, and indexed annuities offer various income guarantees and levels of risk protection.
• Social Security Benefits: Understanding the optimal time to claim Social Security can maximize your benefits.
• Pension Payments: If you have a pension, coordinate its distributions with other income sources.
• Part-Time Employment: Working part-time in retirement can provide additional income and keep you engaged.
• Investment Income: Managed portfolios, dividend-paying stocks, and bond ladders can offer supplementary income.

Tailoring Your Retirement Plan

A personalized retirement plan should consider your unique needs, goals, and risk tolerance. Work with a financial professional to develop a comprehensive strategy that integrates various income sources and provides flexibility to adapt to changing circumstances.

Conclusion
Focusing on income rather than assets in retirement planning offers several advantages. It provides a more efficient planning framework, aligns better with spending goals, and creates a more stable and manageable financial strategy. By prioritizing income, retirees can ensure they have the necessary resources to enjoy a secure and fulfilling retirement.

For personalized advice and to ensure your retirement plan prioritizes income effectively, connect with a financial professional at SafeMoney.com. Use our Find a Licensed Advisor section to find an independent financial advisor and request a strategy session. For any questions or concerns, or call us at 877.476.9723.

The post 3 Reasons to Prioritize Income Over Assets first appeared on SafeMoney.com.

But everyone has different income needs, and they vary in their readiness for retirement. Plus today’s retirement landscape is far different than what our parents and grandparents dealt with. In the past, a steady pension from an employer, dependable income from Social Security, and a small fund of retirement savings was standard fare. Now those days are largely a distant memory for most Americans.

Even with retirement planning being more of a personal responsibility, there are measures you can take to achieve a financially confident future. Here’s a look at five effective steps to building a solid game plan for your retirement lifetime.

Five Steps for Retirement Financial Security

1. Avoiding debt. As Americans approach or enter into retirement, thriftiness becomes more important. If you’re nearing this stage, consider avoiding new debt. Taking on debt while you’re in the “retirement red zone” – or 10 years before you retire and 10 years into retirement – can be a costly mistake.

New liabilities will put more pressure on your budget, diluting savings that could be paid toward other needs. Baby boomers tend to not be thrifty as their parents were, so be self-critical. Say you’re thinking about buying something. It’s advisable to pay cash, and if you don’t have the money now, consider delaying the purchase until you do have the money.

2. Considering wiping out existing liabilities – especially the mortgage. If you’re around 10-15 years or less away from retirement, now is a good time to pay off existing debt. That especially goes for the mortgage. According to the most recent data from the U.S. Bureau of Labor Statistics, housing costs were the greatest expense for retired households in 2014 – inclusive of mortgage payments.

Once you’ve left the workforce, the paychecks for your employment cease. Now you’re living off savings that you’ve put aside over a lifetime. Getting rid of debt now means more financial freedom later on. It helps free up savings, leaving more money to invest or spend as you wish.

3. Determining future expenses. Consider your current financial life. Do you have anything now that you won’t have or do in your retirement years? Based on current spending habits and assuming a 2-3% inflation rate per year, it helps to develop a personalized snapshot of what future monthly income needs will be like.

An entire article could be devoted to this, but here are some overall basics to follow. Your income plan should account for the different areas of spending: housing, food, transportation, clothing, utilities, insurance, entertainment, gifts & donations, hobbies, and medical needs. Of course there are miscellaneous expense categories which might be outside of typical monthly costs: house maintenance, income and property taxes, automobile upkeep, holidays, vacations, appliance upkeep or replacements, and other such areas.

Once these numbers have been determined, the total can be divided by 12 for a total monthly projection and added to the total of your other cost projections. With life expectancy on the rise, it’s ideal to have projections run for 30 years. Be sure that inflation is accounted for in each year, as well.

4. Creating a plan to pay the bills. With a snapshot of future income needs, it’s important to know how you’ll cover those expenses. Social Security plays a role in the finances of most retired households. Know what age at which you’ll claim your benefit and what you can expect for benefit payouts. Remember, deferring Social Security increases your benefit by 7-8% per year.

When considering what sources you’ll be drawing income from, you may want to consider withdrawal rates and tax implications. When they participate in an employer-sponsored retirement plan, many Americans opt to take a lump sum withdrawal (if an option). However, managing income streams from a retirement portfolio can be quite complicated – not to mention the possible tax liability. With contractual guarantees for income lasting as long as you could live, annuities may be an option to consider for steady, scheduled income payments.

5. Evaluating the risk profile of your plan. In retirement, it’s important to be mindful of risk. For those of us with a low tolerance for bear markets or investment losses, a falling market can provoke us to sell off stocks. We may think we’re staving off further losses, but in reality it’s foregoing recovery. And for seniors and baby boomers with a bigger appetite for market risk, having too much of their assets in volatile investments can lead to “sequence of returns” risk – or having to deal with the effects of investment losses early in retirement. A diversified portfolio with a suitable balance of risk and return potential, based on individual needs, age, and circumstances, can help.

With the ability to protect assets from market downturns, annuities may be a financial strategy for more conservative-minded retirees and pre-retirees to consider.

What about Your Personalized Income Strategy?

Dr. Robert C. Merton, a widely-respected economist and Nobel Prize winner, argues that too much of today’s financial planning focuses on investment values, returns, and return potential – not monthly income goals. Ultimately, SafeMoney.com believes that a retirement plan should focus on preserving assets and ensuring they’ll be around to generate income when you need them.

If you’re ready for help with preparing an income strategy that enables you to spend with confidence, SafeMoney.com can assist you. Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.

The post 5 Steps to Building an Effective Retirement Plan first appeared on SafeMoney.com.

It also depends on what employment capacity you’re in. If you’re employed by a large company, for instance, you may have a retirement pension plan via your employer (though these sorts of perks from employers are disappearing). But what about planning for retirement if you’re self-employed?

According to various data sources, there are roughly 10 million self-employed Americans – from business owners and independent contributors to freelancing professionals. In a recent TD Ameritrade survey, around 55% reported they’re behind on retirement savings. On the whole, baby boomers have an average windfall of being $335,000 down from their retirement savings objective.

What, then, are the self-employed to do? Read on for some helpful tips.

Different Options for Self-Employed Americans

As a baseline, financial professionals recommend putting away tens of thousands of dollars if you can. But for many self-employed individuals, this may not be viable – putting away a few thousand in a retirement account will still help toward accumulating sufficient retirement funds.

There are a number of vehicles available to the self-employed in the form of retirement accounts:

• Roth IRAs – Roth IRAs are an ideal vehicle for many people, as account distributions once you turn 59.5 years old are tax-free. Contributions themselves aren’t tax-deductible, but in contrast traditional IRA account distributions are taxable. So there’s a tradeoff. The contribution limit is set at $5,500 for 2015 and 2016 – for people over 50, it’s set at $6,500.

• Traditional IRAs – In a traditional IRA, self-employed persons have the benefit of their contributions being fully deductible – however, they can’t have a spouse covered by a workforce retirement plan. In addition, contributions can’t exceed gross income. It’s also important to keep in mind distributions with this account are taxable once you hit 59.5.

• SEP IRAs – If your income exceeds $131,000, you can’t contribute to a Roth IRA. An SEP IRA or a Simple IRA may be good alternatives. They’re both accounts that are setup by an employer (the self-employed party, of course) for the employee (again, the self-employed person). An SEP IRA enables you to contribute up to 25% of your income, up to a maximum limit of $53,000.

With a Simple IRA, you can stock away all of your net earnings (which is calculated using an IRS-developed formula) up to $12,500 in 2015 and 2016. The account also allows for an “employer match” of up to 3% of income. For people who are 50 years old and above, they can put away up to $15,500.

• 401(k)s – A 401(k) may be another suitable option. Like with a Simple IRA, you can make contributions as employee and employer. The employee pretax limit for contributions for 401(k)s is set at $16,000 in 2015 and 2016; for people aged 50 and over, it’s set at $24,000.

What about High-Income Earners?

For people who are higher income earners or looking to meet retirement savings goals within the space of a few years, a defined-benefit plan may be ideal. However, this type of plan is complex. The maximum annual benefit for a defined-benefit plan is $215,000; calculations are made by an actuary and are based on numerous variables.

A defined-benefit plan also requires annual contributions. So it may not be a good fit for self-employed persons with variable income per year. For some-employed persons earning elevated income amounts, funding a defined-benefit plan and a 401(k) may be an ideal combination.

What’s the Takeaway?

It’s clear self-employed Americans have many options at their disposal. All of these selections should be investigated depending on your unique goals, current needs, and annual earnings. Unlike employed Americans, the self-employed don’t have anyone pushing them to plan for retirement. For best results, it’s best to seek out guidance from a capable financial professional.

At SafeMoney.com, we understand this begins with education. Please use the articles here for your enrichment. And when you’re ready for personal guidance, SafeMoney.com can help you. Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.

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Given present circumstances, it’s easy to understand these fears. Many people worry about whether they will have enough money in their retirement years. It could be for paying medical expenses, maintaining a certain lifestyle, or covering costs of daily living. Much of the retiree community is thinking about how much money they will be able to leave to their loved ones, as well.

However, a secure financial future needn’t be filled with worry.

What’s the Solution?

A financially secure retirement begins with having an effective retirement plan. The first step is keeping in mind the three stages of financial life and how each differs from one another: the accumulation stage, the preservation stage, and the distribution stage.

• Accumulation stage – The period during which wealth is accumulated. This phase occurs in a person’s working years (20 years of age – pre-retirement age).
• Preservation stage – The stage of life in which people begin approaching retirement. In this phase, it’s important to ensure your financial portfolio isn’t tied up as much in investments with strong risk (for instance, the volatility of the stock market).
• Distribution stage – Your retirement years. During this phase, people rely upon the wealth they built up in earlier stages for income. In the case of an annuity, wealth will have accumulated in your annuity’s cash value. Now you will receive payments from your annuity as a guaranteed source of income.

During the preservation and distribution stages, you need to keep your “safe money” – or money which is safe and protected from risk – first. Ask the right questions to determine the particulars of your retirement plan:

• What age would you like to retire at?
• What will be your goals and aspirations post-retirement?
• How much do you currently hold in retirement savings?
• What are your current living expenses?
• Assume an inflation rate of 3-5%. With this in mind, what will be your future living expenses?
• Will you be working part-time to further supplement your retirement income?

Retirement plans will differ for employees, employers, and business owners. Learn about the different options at your disposal, and plan according to your unique circumstances. Be sure to fully educate yourself about your Social Security benefits and what they entail.

Determining Retirement Income Needs

A big part of your retirement plan is figuring out your future income needs. In general, there are four primary sources of income for retirement: Personal savings, Social Security, an investment portfolio, and/or pensions or other retirement vehicles.

When evaluating your income needs, think about your present conditions. What do you have in terms of income, expenses, assets, and debts? Consider your future circumstances as well – will you be living in your current home? Or maybe you will live with your children, move to a condominium, or a retirement community. If your current income will not meet the demands of the lifestyle you desire, it’s time to start making changes.

Risk Tolerance: An Important Variable

Another important factor is determining your level of risk tolerance. Or in other words, it’s how much market risk to which you’re willing to subject your financial portfolio.

Market-based investments will offer greater return potential. But they are more likely to suffer from the effects of market downturns. Your investments will lose value when these market downturns occur – and it can take time for them to recover. In the later stages of life, time is precious. A more conservative risk tolerance may be a good practice to incorporate.

The Rule of 100

To determine what risk tolerance is appropriate, here’s a solid principle to follow: The Rule of 100. Simply put, take your age and subtract it from 100. The resultant sum offers guidance as to the maximum amount of market risk you should have in your portfolio.

For example:

• If you’re 60 years old: 100 – 60 = 40. 60 percent of your portfolio should be protected from market volatility and 40 percent should be allocated to maximize long-term growth.
• If you’re 75 years old: 100 – 75 = 25. 25 percent of your portfolio is a safe proportion for growing your portfolio, in this instance.

Additional Resources

Like with all other parts of your financial journey, education is the key! Carefully evaluate your financial circumstances, fully educate yourself on the options at your disposal, and then you can meet with a financial professional about your retirement future.

If you’re ready for personal guidance from a financial professional, SafeMoney.com can help you. Use our Find a Licensed Advisor section to connect directly with an independent financial professional, and to request a personal strategy session to discuss your needs and goals. And should you have any questions or concerns, call 877.476.9723.

The post The Importance of Keeping Your Retirement Plan “Safe Money First” Simple! first appeared on SafeMoney.com.