The loss of a spouse is a profoundly emotional experience, compounded by a myriad of financial and life issues that require immediate attention. In an era marked by economic uncertainty and rising living costs, surviving spouses face unique financial challenges. This article explores some common financial issues that surviving spouses may encounter and offers insights on how to manage them effectively.

Change in Social Security Benefits

One of the most significant financial changes for surviving spouses is the alteration in Social Security benefits. Couples typically receive two Social Security payments each month. However, after one spouse passes away, the survivor is left with either their own benefit or the survivor’s benefit, whichever is higher. This reduction in income can strain the surviving spouse’s budget, as many fixed expenses, such as mortgage or rent, utilities, and transportation costs, remain unchanged.

To mitigate the impact of this change, it’s crucial to have savings and other financial plans in place. Immediate actions include notifying the Social Security Administration of the death to ensure the timely adjustment of benefits. Surviving spouses should also consider whether the survivor’s benefit is larger than their own full benefit and plan accordingly. For those supporting minor children or disabled dependents, applying for survivor benefits promptly is essential since benefits are not retroactive to the date of death but start from the application date.

Drop in Overall Income

The death of a working spouse can lead to a significant drop in household income, potentially necessitating the surviving spouse to re-enter the workforce. This situation is particularly challenging for older adults who may have been out of the job market for years or have health issues. For example, if a corporate executive passes away, their spouse may struggle to find employment that matches the previous income level.

To prepare for this possibility, couples should consider building a robust emergency fund and exploring part-time work or freelance opportunities that align with the surviving spouse’s skills and health.

The Pension Factor

Pension benefits can provide financial stability during retirement, but the death of the pension recipient can reduce or eliminate these payments. Many pension plans offer survivor benefits, typically around half of the original benefit, but not all plans do. Surviving spouses need to understand their entitlements and adjust their financial plans accordingly. Reviewing pension plan details and considering life insurance to supplement lost income can provide additional security.

Income Taxes

Surviving spouses may experience changes in their tax liabilities. For instance, a widow might find that her reduced income places her in a lower tax bracket, or she may qualify for certain tax deductions that she didn’t before. However, the change in filing status—from joint to single or head of household—can result in a lower standard deduction and potentially higher tax rates.

Understanding the tax implications of widowhood is crucial. Surviving spouses should consider consulting a tax professional to optimize their tax situation and take advantage of any available deductions and credits.

Estate Planning Considerations

Efficient estate planning can ease the transition for surviving spouses. Having 15 to 20 certified copies of the death certificate can facilitate the retitling of accounts and the collection of life insurance benefits and retirement plan funds. Detailed records of communications with former employers, the Social Security Administration, and financial institutions ensure that all necessary steps are taken promptly.

Bill Payment and Financial Organization

If the deceased spouse managed the household bills, the surviving spouse must quickly become familiar with the financial responsibilities. Organizing bills, gaining access to online accounts, and setting up a reliable system for tracking payments are essential steps. Ensuring access to the deceased’s email and online accounts can prevent missed payments and additional financial stress.

Life Insurance

Life insurance proceeds can provide crucial financial support for surviving spouses. It’s important to contact the life insurance company promptly, providing the necessary documentation, such as the death certificate and policy number. While insurance companies may offer low-interest cash accounts for the proceeds, transferring the funds to a higher-yielding account may be more beneficial.

Be Alert for Scams

Surviving spouses are vulnerable to scams and fraudulent claims, especially during the probate process. Scammers may attempt to collect on non-existent debts or services. Reviewing debts and obligations with the deceased spouse and maintaining vigilance against fraud can protect survivors from financial exploitation.

Companionship and Loneliness

Beyond financial concerns, surviving spouses often face emotional challenges, including loneliness and isolation. This can lead to adverse health outcomes, such as depression or substance abuse. Support from family, friends, and professional counselors is vital. Group therapy and social activities can provide emotional support and help mitigate the loneliness that often accompanies the loss of a spouse.

Final Thoughts on Planning for Survivorship

Preparing for the financial impact of losing a spouse is an essential aspect of retirement planning. Creating a comprehensive financial plan, building a support network, and consulting with financial advisors can help surviving spouses navigate this difficult period. The steps taken today can make a significant difference in ensuring financial stability and emotional well-being in the future.

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 Common Financial Issues for Surviving Spouses first appeared on SafeMoney.com.

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.

Retirement is a significant phase in life, often marked by mixed emotions: excitement for the years ahead and uncertainty about financial security. Many people have some form of retirement plan in place, whether through personal savings, an employer-sponsored plan, or a combination of both. But with changing market conditions, evolving retirement needs, and increasing lifespans, it’s critical to ensure your retirement plan is robust and aligned with your long-term goals. Seeking a second opinion on your retirement plan can be a prudent step to ensure you’re on the right track.

Common Retirement Planning Challenges

Retirement planning can be complicated, and even the most carefully considered strategies can have blind spots. Here are some common challenges:

• • Underestimating Longevity: Many people outlive their life expectancy predictions, and not having enough savings can lead to financial difficulties.
  • Healthcare Costs: Healthcare expenses tend to rise with age. Not accounting for unexpected medical bills can put a strain on your savings.
  • Inflation: A plan that doesn’t consider inflation might leave you with significantly less purchasing power.
  • Market Risks: Investment risks, particularly with volatile markets, can impact portfolios and retirement income.
  • Estate Planning: Many overlook estate planning, potentially leaving loved ones with complex and expensive inheritance issues.

Benefits of a Second Opinion

Getting a second opinion on your retirement plan offers numerous advantages:

• Uncovering Gaps: A different financial advisor can identify potential gaps or weaknesses in your current plan that you might have missed.
• Fresh Perspective: A second advisor may offer fresh ideas and strategies to optimize your savings, reduce risks, or take advantage of tax-saving opportunities.
• Validation: If you’re confident in your plan, a second opinion can provide validation that you’re on the right track.
• Enhancing Strategy: Recommendations from a new advisor might complement or enhance your existing strategy, ensuring better financial health.

When to Seek a Second Opinion

It’s a good idea to consider a second opinion in the following scenarios:

• Significant Life Changes: Major life events, like downsizing your home, starting a new business, or making a substantial investment, should prompt a review.
• Uncertain Recommendations: If your advisor’s suggestions seem unclear or inconsistent with your goals, it might be time to consult another professional.
• Lack of Confidence: If you’re not fully confident in your plan, a second opinion can provide reassurance or adjustments.

What to Expect from a Second Opinion

A second opinion typically involves a thorough review of your financial situation and retirement goals:

• Assessment Process: The advisor will evaluate your income streams, portfolio risk, insurance policies, estate plans, and other assets to identify gaps or risks.
• Personalized Recommendations: Based on the assessment, the advisor will recommend adjustments that better align your plan with your objectives.
• Actionable Strategies: The advisor may suggest specific strategies, like diversifying your investments or optimizing Social Security benefits.
• Risk Mitigation: They’ll help mitigate risks, such as market volatility or long-term care costs, that could affect your retirement.

Choosing the Right Financial Advisor for a Second Opinion

Selecting the right financial advisor is crucial. Here’s how to find one who aligns with your needs:

• Credentials and Experience: Verify the advisor’s credentials, ensuring they’re certified and experienced in retirement planning.
• Potential Conflicts of Interest: Advisors who don’t adhere to a fiduciary standard may not be obligated to prioritize your interests above their own. Look for advisors who are legally required to provide unbiased, client-focused advice.
• Transparent Fees: Understand their fee structure to avoid hidden costs that could eat into your savings.
• Communication Style: The advisor should communicate clearly and listen to your needs, providing personalized advice rather than one-size-fits-all solutions.

Conclusion
Seeking a second opinion on your retirement plan can be a game-changer in securing your financial future. With the complexities of retirement planning and the challenges that arise over time, a fresh perspective can uncover blind spots, validate your existing plan, or enhance it with new strategies. Make sure to choose a trustworthy advisor who will carefully analyze your financial situation and provide personalized guidance. Taking this proactive step can offer peace of mind and ensure a comfortable and secure retirement ahead.

If you’re seeking tailored guidance, consider consulting a financial professional. Visit our “Find a Financial Professional” section to connect directly. For a personal referral to an independent, licensed advisor, call us at 877.476.9723 or contact us here to book 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 Get a Second Opinion on Your Retirement Plan first appeared on SafeMoney.com.

In today’s uncertain economic environment, retiring before full Social Security benefits are available can seem like a daunting prospect. This is where a well-designed retirement bridge account strategy becomes invaluable, allowing retirees to fill income gaps with calculated precision. Creating this financial bridge isn’t just about setting aside funds; it’s about building a comprehensive strategy that aligns with your broader retirement goals and minimizes risk.

Problem: Income Gaps Before Social Security

One of the biggest challenges early retirees face is the income gap between retirement and when Social Security or pension benefits begin. While retiring early can be an attractive option, leaving the workforce before reaching full retirement age (FRA) creates a gap where retirees may not have consistent income.

Solution: The Bridge Account Strategy

A bridge account is an interim solution that serves as a financial lifeline, offering a steady flow of income to cover essential expenses without tapping into long-term savings too early or resorting to high-interest debt. Here’s how to develop this strategy effectively:

Delving Deeper: Strategic Considerations

• Accurate Income Forecasting: Accurately forecasting income needs is critical to ensure the bridge account provides sufficient coverage. This projection must include day-to-day expenses and future inflation, healthcare costs, and emergency savings. It will help you identify the precise amount required to bridge the income gap.
• Calculating Optimal Bridge Duration: The duration of the bridge period depends on the planned retirement date and when Social Security or pension benefits start. Understanding this timeframe is crucial for targeting the right investment strategies.
• Annuities as a Core Component: Annuities offer predictable, guaranteed income, making them ideal for inclusion in a bridge account strategy. However, each annuity type needs careful selection to ensure it aligns with the individual’s needs.

Integrating Annuities into Your Bridge Account Strategy

Annuities are financial products that provide guaranteed income over a specific timeframe. Here’s how different types of annuities can play a pivotal role in your bridge account strategy:

• Fixed Annuities: Fixed annuities provide predictable, fixed payments, ensuring a consistent income stream during the bridge period. This option is particularly useful for retirees seeking steady payments over a defined period without market risk.
• Immediate Annuities: For those requiring immediate income, these annuities can be purchased with a lump sum and will start providing payments soon after, making them an ideal fit for closing imminent income gaps.
• Deferred Annuities: Planning well ahead allows deferred annuities to build value over time, providing income later that aligns with when the bridge account is needed.
• Variable and Indexed Annuities: Both variable and indexed annuities carry some market exposure but offer the potential for growth to help maintain purchasing power during the bridge period. The key is carefully balancing potential returns with the acceptable risk level.

Problem: Annuity Fees and Withdrawal Penalties

A common problem retirees face when considering annuities is the complexity of fees and potential penalties for early withdrawal. Such charges can diminish returns or restrict access to funds during the bridge period.

Solution: Choosing the Right Annuity and Payout Structure

• Understand Fee Structures: Different annuities have various fees, including administrative charges, surrender penalties, and rider costs. Carefully review these to ensure they align with your financial goals.
• Know Withdrawal Rules: Some annuities impose penalties for early withdrawals. Make sure the chosen annuity aligns with your liquidity needs.
• Select the Right Payout Options: Lifetime payments, guaranteed periods, and lump sums are some payout structures available. Choose a structure that best aligns with the bridge account’s intended purpose.

Additional Bridge Account Components
In addition to annuities, incorporating other financial components into a bridge account strategy can further enhance income flexibility.

• Taxable Investment Accounts: Taxable investment accounts can offer flexibility but require strategic management due to market volatility. Diversification is crucial here to mitigate risks while providing liquidity. Consider a mix of stocks, bonds, and mutual funds.
• Employer Retirement Plans: Accessing 401(k) or similar plans might help bridge the gap if early withdrawal penalties are manageable. Roth 401(k)s and Roth IRAs offer additional flexibility due to tax-free withdrawals.
• Cash and Cash Equivalents: Certificates of deposit (CDs), money market accounts, and savings accounts can provide stable income without market risk. They can also serve as a liquidity cushion for emergencies or unexpected expenses.

Strategic Optimization Tips
Roth Conversions: If taxable income is lower during the bridge period, consider converting traditional IRA funds to Roth IRAs. This can reduce future tax liability and provide tax-free income. However, be aware that Roth conversions will result in immediate tax obligations, so timing is essential.

• Staggering Withdrawals: Withdraw funds from multiple sources in a planned manner to minimize tax burdens and maximize long-term savings. Tapping into tax-advantaged and taxable accounts strategically can reduce overall tax exposure.
• Periodic Strategy Reviews: Life changes, economic shifts, and market fluctuations can affect your bridge account strategy. Regular reviews ensure the plan remains aligned with evolving circumstances.
• Work with Financial Advisors: Retirement planning is complex, and guidance from a trusted financial advisor helps navigate the nuances and identify the best tools to meet your unique needs. They can assist in balancing the use of annuities, retirement accounts, and investments.
• Optimize Social Security: The bridge account strategy often aims to delay Social Security benefits for the highest possible monthly payout. Consider other tactics, like spousal benefits, to enhance long-term Social Security returns.
• Emergency Planning: While bridge accounts cover immediate income needs, building an emergency fund ensures unexpected medical expenses or market downturns don’t derail your strategy.

Conclusion
Crafting a comprehensive retirement bridge account strategy involves more than simply setting aside extra cash. It’s about integrating various financial tools like annuities and investments to develop a cohesive plan that effectively bridges the income gap while preserving long-term financial security. By balancing fixed annuities, investments, employer retirement plans, and cash equivalents, retirees can confidently navigate the income gap before Social Security eligibility, ensuring a financially secure and stress-free retirement journey. Regular strategy reviews, Roth conversions, and professional financial advice will provide additional support in achieving your retirement goals.

Looking for Guidance?

If you’re seeking personalized advice, consider reaching out to a financial professional.. Get started by visiting our “Find a Financial Professional” section, where you can connect with someone directly. If you would like a personal referral for a first appointment, please call us at 877.476.9723 of contact us here to schedule an appointment with an independent trusted and licensed financial professional.

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 Solving the Early Retirement Income Gap first appeared on SafeMoney.com.

Creating a tax-efficient withdrawal strategy for retirement involves a delicate balance between understanding the complex landscape of tax laws and effectively managing your retirement savings for both immediate income and future growth. As retirement draws closer, the focus naturally shifts from the accumulation of assets to the strategic distribution of these assets to fund your retirement years. This shift requires careful planning and consideration of the various tax implications associated with different types of retirement accounts.

The Shift in Focus: Preparing for Retirement

As you edge closer to retirement, the emphasis on accumulating wealth transitions to a strategy centered around the careful withdrawal of funds. This strategic withdrawal is crucial in maintaining financial stability and minimizing tax liabilities during your retirement years. The objective is to ensure that you can comfortably sustain your lifestyle without the worry of depleting your savings prematurely.

The Essence of Tax-Efficient Withdrawal Strategies

Tax-efficient withdrawal strategies are pivotal in optimizing the longevity and sustainability of your retirement income. These strategies are designed to minimize your tax burden while ensuring a steady flow of income throughout your retirement. Given the intricacy of tax laws, there’s no universal strategy that fits everyone. Instead, a personalized approach, considering the specific tax implications of withdrawals from different retirement accounts, proves most beneficial.

Understanding Retirement Accounts

• Traditional 401(k)s and IRAs: These accounts are funded with pre-tax dollars, which reduces your taxable income in the contribution year. The taxes on these funds are deferred until withdrawal, typically occurring in retirement when your tax rate may be lower.
• Roth 401(k)s and Roth IRAs: Contributions to these accounts are made with after-tax dollars. The advantage here is that withdrawals, including the earnings, are tax-free in retirement, assuming certain conditions are met. This feature can be incredibly beneficial for those expecting to be in a higher tax bracket in retirement.

Strategic Withdrawal Planning

A thoughtful withdrawal strategy often involves first utilizing funds from taxable accounts, followed by tapping into tax-deferred accounts, and, lastly, accessing tax-exempt accounts. This sequence is designed to maximize the growth potential of your investments by allowing the tax-advantaged accounts more time to compound.

Roth Conversions as a Strategic Maneuver

Roth conversions are a technique where funds from a traditional IRA or 401(k) are converted to a Roth IRA, thereby incurring taxes on the converted amount at the current rate. While this may increase your tax burden in the year of conversion, the long-term benefits can be substantial. The converted funds in the Roth IRA will grow tax-free, and withdrawals taken in retirement will not be subject to income tax. Furthermore, Roth IRAs are not subject to Required Minimum Distributions (RMDs), allowing for greater flexibility in managing your retirement assets.

The Advantage of Incorporating Annuities

Annuities can serve as a cornerstone in a tax-efficient retirement strategy, providing guaranteed income for life or a specified period. The tax deferral on investment gains within an annuity mirrors that of traditional retirement accounts, with taxes only being due upon withdrawal. This feature can offer a predictable income stream while potentially lowering your overall tax rate in retirement.

Implementing Your Tax-Efficient Withdrawal Strategy

Crafting and implementing a tax-efficient withdrawal strategy involves several key steps:

• Review Your Accounts: Start with a thorough assessment of your retirement accounts to understand the specific tax treatments and implications for each.
• Plan Your Withdrawals: Develop a withdrawal plan that aims to minimize your overall tax liability, taking into account both your current and anticipated future tax brackets.
• Evaluate Roth Conversions: Consider the benefits of converting traditional IRA or 401(k) funds to a Roth IRA, particularly in years when your income may be lower.
• Explore Annuities: Investigate how annuities might fit into your retirement planning, offering both tax advantages and a guaranteed income stream.

Conclusion: The Path to a Tax-Efficient Retirement

A well-thought-out tax-efficient withdrawal strategy is crucial for maximizing your retirement savings and ensuring a stable financial future. By comprehensively understanding the tax characteristics of your retirement accounts, strategically planning your withdrawals, considering the benefits of Roth conversions, and potentially incorporating annuities into your retirement planning, you can significantly enhance your retirement readiness and financial security.

It’s important to recognize that everyone’s financial situation is unique, and the most effective strategy for one person may not be suitable for another. Therefore, consulting with financial and tax professionals is essential to tailor a strategy that best aligns with your specific needs, goals, and circumstances. This personalized approach to retirement planning can offer peace of mind and contribute to a more secure and enjoyable retirement.

Looking for Guidance?

If you’re seeking personalized advice, consider reaching out to a financial professional.. Get started by visiting our “Find a Financial Professional” section, where you can connect with someone directly. If you would like a personal referral for a first appointment, please call us at 877.476.9723 of contact us here to schedule an appointment with an independent trusted and licensed financial professional.

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 Tax-Efficient Retirement Withdrawal Strategies first appeared on SafeMoney.com.

During the show, Dave Ramsey said that retirees could safely withdraw 8% from their portfolios each year and never touch their principal. That is assuming that you see 12% returns per year, have 100% of your assets invested in “good mutual funds,” and keep 4% in your portfolio for inflation. Inflation has averaged 4% for the last 80 years, according to Ramsey.

Apart from unrealistic numbers, the real downside is how Ramsey completely overlooks the danger of sequence of returns risk. What is sequence of returns risk? It’s the possibility of suffering investment losses during a crucial period: in the years just before or in early retirement.

During retirement, you will count on your assets to generate income for you. Average returns don’t matter, but rather the order of your returns. If your assets take a hit in the time just before or early into when you are retired, your window for recovery isn’t what it was during your working years.

Even worse, what if you are withdrawing money during a down year? Your investments will have compounding losses – whatever initial drop they had, snowballed by the money you took out of your account.

In this article, we will go over why Dave Ramsey is completely wrong on his 8% withdrawal rate rule – and why other retirement withdrawal rates, and withdrawal strategies for that matter, might be worth a look for lasting financial security.

What Happened on the Ramsey Show Where 8% Withdrawals Came Up?

On this particular broadcast, Dave Ramsey had a meltdown at the suggestion of using a 3% withdrawal rate for retirement spending.

During the show, one caller talked about how Ramsey’s co-host, George Kamel had put out a video on sustainable withdrawal rates for people who retired early. Based on an analysis by HonestMath.com, Kamel said that a 3% withdrawal rate over 35 years in retirement would still leave you with a very healthy account balance. Even at 45 years in retirement, a 3% withdrawal rate would leave you with a net-positive balance.

Ramsey had a strong reaction to hearing of Kamel’s withdrawal rate discussion. He publicly criticized Kamel for posting the video and said that a 3% withdrawal rate was much too low. He then lambasted well-respected financial researchers and economists who have advocated for 4% as a sustainable withdrawal rate.

“There are all these goobers out there who have always put this 4% crap in the market. I’m just irate now that we have joined the stupidity…” Ramsey said a few minutes into the clip.

Ramsey’s daughter, Rachel Cruze asked about why it was stupid.

“Because it’s too low. It’s too low, and it’s not realistic. You do not need to live on 4% of your money for your nest egg to survive. And what it sets up is, this guy, he doesn’t think that he has enough money. He’s on a plan to be very wealthy, and he’s worried about whether he is going to have enough money or not, because people, stupid people, put out low withdrawal rates… If you think that you can pull only 4% off investments making 12%, where is the other 4% going? You aren’t destroying the nest egg, you are growing the nest egg.”

Dave Ramsey went on to rant about how a 4% withdrawal rate is supposedly stealing people’s financial hopes and retirement dreams. You can see the entire clip on Twitter from the broadcast here.

The Breakdown

Dave Ramsey has been hustling three key points for over 20 years:

• Have 100% of your assets invested in stock funds, no matter your age
• Good mutual funds will give you an average return of 12% per year
• You can take out 8% of your portfolio and you will

In other words, say that you have a $1 million in your stock portfolio. On the first day of retirement, you can take out $80,000 for the first year and then adjust for inflation each year thereafter. According to Ramsey, the 12% average return ensures that you can withdraw 8% per year in perpetuity.

Why 8% Doesn’t Work as a Safe Withdrawal Rate

Remember how we mentioned sequence of returns risk earlier? The problem with using an average annual return of 12% is just that – it’s an average. In retirement, what matters aren’t average returns, but rather the order of your returns. To that end, you might even say that using average returns to predict future results can be misleading, especially with the unpredictable nature of financial markets.

Let’s expand on the order of returns. While you are working, you probably invested so that you could build up a retirement nest egg. If your investment assets fell in value, you had time for them to recover. After all, you were still working, you could contribute more to your retirement accounts, and your assets would rebound in value over time. In that case, order of returns didn’t matter as much.

However, once we reach retirement, things are different. During your post-career years, you will count on your assets to generate income for you. If your assets take a hit in the time just before or early into when you are retired, that window for recovery isn’t what it was during your working years. You don’t have as much time for your assets to bounce back.

It’s inevitable that you will have up years and down years. Another thing to consider is what those gains and losses might look like. In some years, you will have single-digit gains or losses. Years of double-digit gains will be great, but on the other hand, years of double-digit losses can really take a chunk out of your retirement assets.

Worse, what if you are withdrawing money during a down year? Those losses will compound. Your account balance is smaller from those initial losses, and the amount you take out reduces your balance further.

Even a 10% loss at the wrong time can do a lot to take someone’s lifestyle goals or retirement plan off the rails. If a 4% withdrawal rate gives you just enough financial guardrails to keep you on track, how could an 8% withdrawal rate come close to being sustainable? To ensure that you don’t outlive your income in retirement?

The short answer is that it doesn’t. The math doesn’t compute.

Longevity Risk and Healthcare Costs

Another thing that Ramsey’s 8% withdrawal rate overlooks is the risk of increased longevity. As people live longer, they face the challenge of having enough money for a longer retirement.

There are also healthcare costs and long-term care costs, which usually go up in the 70s and beyond. When these health costs are added to the menu of existing retirement expenses, they can quickly eat into someone’s retirement income. An 8% withdrawal rate may not well be sustainable at that point in time.

Consider Alternative Withdrawal Strategies

Many financial professionals look at 4% as a sustainable withdrawal rate, and it’s certainly more manageable than 8%. But even then, it’s not a foolproof method. If you have scrimped and saved during your working years for a secure retirement, are there other ways that might help ensure you have enough income?

One option to think about is creating an ‘income floor,’ or a certain amount of income that you can count on each year. You could opt for an annuity and turn on its guaranteed income stream so that you have a steady, baseline source of money. The annuity would provide income for as long as you lived, in times good and bad.

The rest of the money could be diversified into other assets, including ones with growth potential that can keep up with inflation. The stability and guarantees of the annuity could help ensure that you have a steady income stream in good and bad economic climates.

If a “safety-first” strategy with an annuity doesn’t appeal to you, you may also explore other withdrawal strategies. Those can include a bucket-driven approach, RMDs as a guide for withdrawals, a dynamic withdrawal approach, and other rules-based strategies that can offer flexibility.

Some Final Thoughts on Dave Ramsey and an 8% Withdrawal Rate

Dave Ramsey has a following of millions seeking financial freedom, but his financial advice isn’t always the best. Many retirement researchers and economists have done research and found that a conservative withdrawal rate, such as the 4% rule, is quite effective. It’s not foolproof, and for those who want more flexibility or more certainty, other withdrawal strategies can be explored.

Either way, Ramsey’s 8% withdrawal rate is unsustainable and impractical. It’s likely to lead someone to run out of money, as Ramsey’s assumption of 12% average returns doesn’t hold up to scrutiny.

If you are near retirement or planning for your retirement income, consider other approaches beyond the Ramsey school of thought. Blended strategies incorporating contractual guarantees, such as those from annuities, can provide retirees with a safety net in times of market and economic uncertainty. Other withdrawal strategies have also been tested by advisors and researchers and found to hold up well.

Talk to your financial professional about your financial goals in retirement and what options can help you reach them. They can help you find the right strategy for your situation. If you are looking for a financial professional, many experienced and independent financial professionals are available here at SafeMoney.com.

You can connect with someone directly by visiting our “Find a Financial Professional” section and seeing if they are a good fit for your goals. If you would like a personal referral, please feel free to call us at 877.476.9723.

The post Is Dave Ramsey’s 8% Withdrawal Rate Valid? first appeared on SafeMoney.com.

For many people in retirement, this situation applies now. The cost of living is going up. Healthcare costs are often an ever-growing area of spending for many retirees, as their need for healthcare usually increases in later years. What’s more, surviving spouses are often left in a harder situation, as their expenses may not go down proportionately with their incomes.

Here we will look at some of the issues that surviving spouses can expect to face after their spouse is gone.

Change in Social Security Benefits

One big change that surviving spouses experience is that they are no longer privy to their spouse’s Social Security benefits. Whereas they once had two Social Security payments each month, now there is only their own benefit, or else the survivor’s benefit.

That means that they must pay their monthly bills with their reduced income. Many expenses will remain after the death of one spouse, such as the rent or mortgage payment, utilities, transportation and insurance, and other assorted expenses.

This change is more extensive when the primary income earner dies first, meaning that the larger of the two benefits will disappear. It’s good to prepare for this scenario beforehand by socking away money in savings and taking other measures to ensure that the surviving spouse will be able to pay all their expenses.

One thing that should be done immediately is to have the funeral director notify the Social Security Administration of the spouse’s death. This way, there will be no problems with receiving further benefits on behalf of the deceased.

Another important factor to consider is whether the survivor’s benefit for Social Security is larger than the full benefit that will be paid to the survivor based on their own earnings history. If the survivor is supporting minor children, then they need to make an appointment with their local Social Security office right away to get survivor’s benefits.

Why? Because the benefit clock starts from the day of application and not the date of death. Survivors should also apply immediately if they are caring for their deceased’s children under the age of 16. If neither of these conditions applies, then they can apply for survivor’s benefits at age 60 (or 50 if they are disabled).

Finally, say that the survivor benefit is expected to be larger than the surviving spouse’s own benefit. They can take their own benefit early at age 62 and then switch to the survivor benefit when they reach full retirement age.

Otherwise, they can delay their own benefit until age 70 and collect the survivor’s benefit in the meantime. Then they can switch to their own larger benefit if that is bigger than the survivor’s benefit.

Drop in Overall Income/Loss of Income

The loss of one spouse can be hard to adjust to if that spouse was still working. The surviving spouse may need to go back to work to support themself, which may be challenging if their health isn’t the best or they have been out of the workforce for some years.

For example, take a couple where both spouses are in their late sixties and the husband was still working as a corporate executive. If he passes away, then his wife may be forced to rely on herself to make ends meet. And if she hasn’t had a job in the past few years, it may be harder for her to find sustainable employment.

The Pension Factor

Retirees who have a guaranteed pension can rely on this income while they are still living. But once the pension recipient is gone, the pension payout can go away, unless the recipient elected to get a survivor benefit for the spouse after their death.

Most survivor benefits for a pension are only about half of what the full benefit was, or even less in some cases. Surviving spouses need to be clear on how much they will get, if anything, after their spouse is gone.

Income Taxes

This is one area where surviving spouses may get some relief. Some surviving spouses may discover that they owe reduced taxes, or even no taxes, on their remaining income.

Say that a couple has a husband who dies while at a job paying $70,000 a year. The wife may find that her Social Security, survivor pension, and income from her retirement portfolio add up to less than her standard deduction (or itemized deductions if used instead). On the other hand, she may fall into a lower tax bracket than before, even if her income exceeds those amounts.

However, the surviving spouse’s filing status will also change after the death of the former spouse. The survivor can still file jointly for the year in which the spouse died. If the survivor is supporting any dependents, then they can file as a qualifying widower with dependent child for the next two years. After that, they can file as either single or head of household, depending upon their circumstances. In turn, that means a lower standard deduction and less favorable tax rates in many cases.

Tax rules for Social Security income for single filers say that up to 50% of Social Security benefits can be taxed if the filer’s modified adjusted gross income exceeds $25,000. If their income exceeds $34,000, then up to 85% of their Social Security benefits may be taxable.

Estate Planning Considerations

When it comes to the death of a spouse, it’s good for the survivor to request 15 to 20 certified copies of the death certificate so that they can retitle all their accounts and debt obligations to the survivor’s name only.

They will also need these copies to collect any life insurance benefits, remaining employee wages, and retirement plan benefits. Survivors should also keep detailed records of all of the calls they make to former employers, the Social Security Administration, and any IRA or retirement plan custodians in order to ensure that everything is processed correctly.

Bill Payment

If the deceased spouse paid all of the monthly bills, then the surviving spouse should find an organizing system, such as a multi-stack drawer, and put all of the monthly bills into it. That way they will be set to pay everything on time.

If bills are sent via email, it’s crucial for the surviving spouse to have access to their spouse’s email before they die. Then they can log in and keep up to date with any bills that are delivered only via email.

Survivors should also have their spouse’s logins and user IDs for all the accounts that are only open in their names. This way they can avoid having bills come due and past due that could have been easily paid.

Any subscriptions that were for only their deceased spouses can also be cancelled.

Life Insurance

If the deceased spouse had any type of life insurance, then the life insurance company should be contacted about the death benefit. Along with the death certificate, it’s also good to have the life policy or contract number to look up the policy with.

If this information isn’t handy, then the deceased’s Social Security number should be sufficient. The insurance company will typically offer a cash account that you can put the proceeds in until you have the chance to spend them.

These accounts usually pay low interest earnings. It might be to put the money over into your own bank, cash, or money market accounts, which can pay more interest.

Be Alert for Scams

Surviving spouses are particularly vulnerable to swindlers. This is especially true if any of the deceased spouse’s assets are required to go through the probate process.

Many unscrupulous predators try to collect “bills” from survivors for things that were never bought or borrowed. Sometimes these situations can come from family members!

Couples need to carefully review their debts and other obligations while both spouses are living in order to protect themselves from this type of crime.

Companionship and Loneliness

Not every issue is financial. One big downside to survivorship planning is the emotional toll that being alone can take on survivors. Those used to companionship for many years are suddenly thrust into the cold, unforgiving pit of loneliness.

This can open the door to a multitude of problems, such as extended periods of isolation. In turn, that can fuel alcoholism or other maladies that can be bad for the survivor’s physical and mental health. Children and caregivers should watch for these symptoms and take the necessary actions if they see it.

Individualized and group therapy can be helpful for those who suffer from these maladies.

Some Final Thoughts on Planning for Survivorship Scenarios

Losing a spouse can be one of the hardest things to adjust to in life. The financial ramifications of this loss can also be hard to deal with in many cases.

Survivors need to surround themselves with a reliable support group of friends and family that they can rely on to get them though this trial. Having a well-crafted financial plan can help with the tough details that must be covered when one spouse dies.

Consult your financial advisor for more information on what must be done to be prepared for survivorship situations. The steps that you take today can make a difference tomorrow.

What if you are looking for a financial professional to guide you now? Or perhaps you simply want assistance in a specific area or a second opinion of your existing retirement strategy. For convenience’s sake, many independent and experienced financial professionals are available at SafeMoney.com to assist you.

Get started by visiting our “Find a Financial Professional” section, where you can connect with someone directly. Please feel free to reach out with any questions that you have or to request an initial appointment. Should you like a personal referral, please call us at 877.476.9723.

The post Common Financial Issues for Surviving Spouses first appeared on SafeMoney.com.

The good news is that even if you feel that you could have saved more money than what you have, there are still options for securing a guaranteed retirement income. Let’s take a deeper dive into what some of those options might look like, and what they can do for you.

What Is a Guaranteed Retirement Income?

Guaranteed retirement income is just what it sounds like: money you can count on for however long your retirement lasts. You won’t outlive your money, and you can enjoy financial security for the rest of your days.

Travel, visits to the grandchildren, and other activities that you wish to pursue can be less financially stressful when you have income that lasts as long as you might need it.

What Are Sources of Guaranteed Retirement Income?

When most people think of retirement income, they immediately think of Social Security benefits. While Social Security will provide you with some income, the benefits are lower than many people realize.

The average Social Security check for retirees as of June 2022 was $1,306 a month. That won’t go very far. So, what else is there?

• Pension plans
• Annuities
• Reverse mortgage
• Life insurance
• Dividends

Let’s examine these one by one.

Pension Plans

This requires planning at least ten years ahead of your retirement goal. If you work for a government employer, you might well have a defined-benefit pension.

Private-sector companies also used to offer pension benefits as well, but now it can be hard to find a job with a pension. If you haven’t spent 30 years with the same company and that company offered a pension plan, then the pension probably won’t be available to you.

It’s also fairly unrealistic in today’s market: the average person stays in the same job for just 4.1 years. Reasons for changing jobs often include advancement and more money.

Either way, if you are one of the lucky few with access to a pension plan at work, you would have some income that you could count on in retirement. Of course, you are also counting on your employer and its ability to make good on promised lifetime payments in the future, as well.

That might be good to keep that in mind as you think about guaranteed retirement income sources for your financial future.

Annuities

An annuity is a financial product offered by an insurance company. One way to think of an annuity is as your own pension-like income source. An annuity’s goal is to provide you with a stream of steady income to last you through retirement, however long it might last. You can buy an annuity with a lump sum or with a series of payments.

There are different types of annuities. There are immediate annuities, which are a simple way to guarantee some income in your golden years, and the payments start right away.

Deferred annuities begin making payments at some future predetermined age. If you pass away before you reach that predetermined age, usually your spouse or another beneficiary can inherit the payments. With an immediate annuity, the contract ends when you pass away, unless the payout is structured to continue payments to a beneficiary.

There are also two different ways your money can grow within the annuity: Fixed-rate and . This is like a tax-deferred retirement savings account. With a fixed-type annuity, your money can earn interest but is also protected from the risk of any market losses.

Variable annuities invest in the market, and you have different funds that you can allocate money into, but you still have the guaranteed income option still in place. There is more market risk to a variable annuity, but there is potentially more growth as well.

You may ask yourself, “If I have enough money to invest in an annuity, why not park it in a savings account and withdraw it as I need it?” You could do that.

However, what happens if you set a new record for longevity and live to be 112? Your savings account was probably drained a long time ago. And that could feasibly happen even in earlier ages, such as the 80s or 90s, if your money didn’t grow at a rate above the typically low yield of a savings account. With an annuity, your payments are guaranteed, even if you live a ridiculously long time.

You can’t outlive your money. This can give you tremendous peace of mind, and help you to enjoy the money you have stashed elsewhere because you know you will still have money coming in throughout your life.

Another advantage is budgeting. For a certain type of person, having a lump sum in a savings account is an invitation to go shopping. Before you know it, the money is gone. With an annuity, you won’t have to worry about impulsive purchases and ill-thought out travel destinations.

Make sure to ask your financial professional about balancing your guaranteed income needs in an annuity with your liquidity needs and other parts of your financial picture.

Reverse Mortgage

If you own your home or have a lot of equity stored in it, you could consider a reverse mortgage.

Instead of you paying the mortgage company, they pay you a fixed sum. You need to own your home or have at least 50% equity to qualify. There are a lot of ways you can choose to receive the money: a lump sum, a credit line, monthly payments, or some combination.

Once you pass away, the amount of the loan will need to be paid back to the bank by your heirs, or the bank will sell the house to recoup its costs. And don’t forget to pay your property taxes and homeowners insurance while you receive your reverse mortgage payments–a few homeowners have had their homes foreclosed on because they forgot that.

Life Insurance

There are two basic types of life insurance: term life and permanent life. Only permanent life insurance will provide you with an income stream in retirement. It’s definitely more expensive than term life insurance.

But as you move into your 60s, term life coverage goes up, and starting at a certain age, insurance companies won’t even underwrite term coverage for a prospective policyholder. So, if the prospect of another retirement income stream and life coverage that doesn’t expire (as long as premiums are kept up) appeals to you, the higher cost for permanent life insurance may be worthwhile.

Dividends

Dividends are payments that stocks pay, usually quarterly. If you have invested wisely, dividend payments can provide income in retirement.

However, you need to have a lot invested. And that also assumes that those companies behind the dividend will continue them in years ahead (which many publicly traded companies do).

While this is another way to generate income in retirement, it isn’t guaranteed. Ask your financial professional about this and the other sources of income as discussed above, which can pay you guaranteed income for life, if that is important to you.

How Can a Guaranteed Retirement Income Help You?

Since no one can predict how long they will live, having a guaranteed income in retirement can help you enjoy your retirement more. You will know you won’t outlive your money, so you can enjoy the money you do have.

Retirees who have a guaranteed income stream tend to live longer, as a significant source of stress (running out of money) is absent.

How Much Guaranteed Retirement Income Will You Need?

According to experts, a very simple rule of thumb is that you will need about 70% of your pre-retirement income. You will spend less on food, clothing, and gas. Hopefully, your home will be paid off. And you won’t have to contribute to your retirement fund.

Some expenses tend to increase, though, such as healthcare costs. This is a very flexible rule of thumb, but it’s one starting point, and even then, it’s even better to come up with a personal picture of your future income requirements. A great way to take a gander of what your personal retirement income needs will be is to use your current spending as a clue-in of what future spending might look like.

The Bottom Line About Your Financial Security

A guaranteed stream of income in retirement that lasts as long as you live is the ideal situation. Ask a financial advisor about what type of annuity, or other guaranteed retirement income option, may be right for you.

Are you looking for a financial professional to help you sort through your financial ‘what-ifs’ and put a plan in place for your future? Or perhaps you want a second opinion of your current plan. No sweat, many independent financial professionals are available at SafeMoney.com to assist you.

Use our “Find a Financial Professional” section to get started and connect with someone directly. Please feel free to discuss your situation and, if need be, request an initial appointment to explore a potential working relationship. Should you want a personal referral, please call us at 877.476.9723.

The post Guaranteed Retirement Income: How to Secure More Confidence for Your Financial Future first appeared on SafeMoney.com.

One way to get a good grip on this is by mapping and estimating what you expect your future spending to be.

This can give you a high-level perspective of how much income you will need for your idea of a comfortable retirement. Everyone has a different situation. Because of that, the amount of annual income that you will need will likely differ from others.

That being said, you can still have more clarity in your income planning and decisions by seeing what others’ financial experiences are in retirement. One helpful metric in this regard is understanding which expenses can dominate your retirement spending.

Here are four expenses that can take a bundle out of your retirement money if you don’t plan for them. Having strategies for these costs, and your overall expenses, can go a long way toward keeping your retirement goals on track.

Housing Costs

Perhaps surprisingly, housing costs are the largest area of retirement spending. Among households aged 65 and up, housing spending was the biggest expenditure in recent past years, according to the Bureau of Labor Statistics.

Home mortgage payments, or rental payments on an apartment lease, make up a large part of this area of spending.

Costs of home maintenance also can add up. Our ability to take care of maintenance issues might decline over time. With aging, we might turn to outside help to take care of more of these tasks for us.

If you are still living in your own home in retirement, there may be major home-project expenditures that can creep up: a roof replacement, upgrades to your home interiors to make them more senior-friendly, upgrades to the kitchen, or upgrades to living quarters, for instance.

You might also have other home improvement projects that you put off during your working years and that will help increase your home’s curb appeal for later.

Make sure your spending accounts for all of these possibilities. Your estimates should account for the recurring housing costs you pay on annual basis.

Also, don’t forget about property taxes as well as any taxes on property-related income streams such as mineral rights.

Healthcare Expenses

Healthcare often tends to go up as retirees move into their later years.

According to Fidelity, a 65-year-old couple who retired in 2020 might pay $300,000 in total medical and healthcare expenses throughout their retirement. Among single retirees, Fidelity estimated total healthcare costs of $157,000 for women and $143,000 for men, respectively.

For a 65-year-old couple, that anticipated price tag rose from $295,000 for healthcare and medical expenses in retirement, assuming they retired in 2020.

Your mileage may vary depending on the kind of Medicare coverage you have and the healthcare you receive. Medicare doesn’t cover all health expenses, as you are responsible for many out-of-pocket expenses yourself.

These include bills for eye care as well as dental care. If you have a Medicare Advantage plan, you won’t be paying as much for health insurance. But you will shoulder more of your healthcare expenditures as you move more into retirement.

A Medicare Supplement plan will enable you to pass more of these expenses to the insurance company. However, you will pay higher premiums for that benefit.

Your financial advisor or insurance agent can help you walk through your options. They can also help you develop strategies for managing your healthcare on an annual basis and helping control those costs as reasonably as possible.

Long-Term Care Costs

One of the biggest areas not covered by Medicare is long-term care. According to the Department of Health & Human Services, as much as 70% of Americans ages 65 and up may need some long-term care service or support at some point.

Long-term care can provide a variety of services for seniors. For example, some services help you with fulfilling certain acts of daily living that you might not be as physically able to do then.

Those can be bathing, eating, transferring, toileting, and other everyday activities. Other services include assisted living facilities, where chores such as yardwork and housecleaning are performed for the residents on a regular basis.

In other situations, long-term care might mean looking after someone whose mental or physical capacities have diminished considerably. This might be due to conditions like Alzheimer’s or other dementias.

Long-term care can also be costly. According to Genworth’s 2021 Cost of Care Survey, the median cost for a semi-private room in a nursing home in the U.S. was $7,908 per month. For a private room, the cost jumps to $9,034 per month, according to Genworth.

In-home care also comes with a price tag. Genworth reported that in 2021, the median costs for homemaker services and for a home health aide were $4,957 and $5,148 per month, respectively.

There are many insurance products that, with creative and proactive planning, can reduce this cost burden and help you manage this need.

These solutions range from long-term care insurance to innovative annuity and life policies built around generating tax-advantaged proceeds specifically for long-term care.

Your financial professional can guide you through these possible solutions and see what might make sense for your situation.

Entertainment, Leisure, and Hobbies

Many retirees have also found their spending jumps in regard to entertainment, hobbies, and other activities they do in their now-much-greater spare time.

In a survey by the Employee Benefit Research Institute, 21% of retirees said they were spending more on these than what they expected. It makes sense.

With all this new free time, retirees want to look for ways to occupy themselves and keep from becoming bored. For many people, their job was part of their identity, a source of social connectivity, and a place of friendship.

But now that they aren’t as involved in their workspace, retirees may find it challenging to find new ways to spend their time and keep up their identities.

Plotting out the activities that you anticipate pursuing in retirement — and that includes goals that you want to do but have been putting off for years — will help you overcome this potential hump.

Achieving More Financial Confidence About Retirement

Planning for retirement means anticipating the financial obstacles that you might face and preparing ahead of time for how you will get around them. During your career, your financial strategy was laser-focused on growth and accumulation.

As you draw nearer to retirement, a shift in strategy focus toward retirement income will be helpful. Your financial professional can help you prepare for this next life stage and for a comfortable, fulfilling lifestyle.

Consult your financial advisor for more information on retirement income planning and what it means to you. If you are looking for a financial professional to guide you — or you want another opinion of your existing plan — no sweat. Help is just a click away here at SafeMoney.com.

Use our “Find a Financial Professional” section to connect with someone directly. You can request an initial appointment to discuss your retirement goals, your personal concerns, and your financial situation. Should you need a personal referral, please call us at 877.476.9723.

The post What Retirement Expenses Are You Most Likely to Face? first appeared on SafeMoney.com.

Some folks continue to work in some fashion, often for their own enjoyment. However, chances are you won’t count on this same income source in the way that you did during your career. You may well have to find a way to replace this income with other income streams.

This brings up a big question: How will you draw income for your retirement spending needs?

What Income Sources Will You Use?

There are several sources which you may be able to tap for retirement income. Those potential assets can include CDs, Treasury securities, savings bonds, I-bonds, TIPS, and corporate or municipal bonds.

What about other sources of income that aren’t fixed-interest assets of sorts? There are also preferred stocks, REITs, income from rental or commercial properties, or even payments just from cash.

Some retirees also depend on proceeds from mutual funds and ETFs as another common source of monthly retirement income. If you are an accredited investor, then income from limited partnerships or other private investment opportunities may be a possibility.

Part-Time Work, Another Income Source?

Many folks turn to employment as a continuing source of income, so they are working for more than just personal fulfillment. In that regard, income from a part-time job can be another way to tie over on recurring expenses for your lifestyle each month.

Of course, keeping this up can depend on your health and other circumstances, such as whether you will still have reliable transportation after you retire.

The One Thing That Pays Guaranteed Lifetime Income

However, there is one other possible source of guaranteed income that is available to you.

Annuities can pay you a stream of income that you can’t outlive. You will continue to receive payments if you exhaust all of the money in the contract.

In fact, besides Social Security an annuity is the only financial vehicle on the planet that is capable of paying you a truly guaranteed income for life. The insurance company is bound by law to keep sending you a monthly check for as long as you live. You can think of an annuity as a form of private defined-benefit plan.

Every month, you will receive your income check like clockwork, no matter what happens in the markets. These annuity payouts will continue like clockwork until you die.

Continuing Income for Spousal Needs

Annuities can also pay a joint benefit, so that as long as either you or your spouse is living, one of you will continue to get a monthly check until death.

Annuities are also one of the few types of vehicles that grows on a tax-deferred basis, and unlike with retirement savings accounts, the IRS has no limits on the amount of money that you can put into one.

There are three main types of annuities: fixed, indexed, and variable. Here’s a breakdown on each type of annuity and how they work.

Fixed Annuities

Fixed annuities are the simplest type of annuity in the marketplace today. They function much like CDs, except that they are backed by an insurance carrier instead of the FDIC, and they grow tax deferred.

Fixed annuities pay a fixed rate of interest for a set period of time, such as five years. Fixed annuities are popular alternatives for risk-averse retirement savers because they usually pay slightly higher rates than other types of guaranteed instruments, such as CDs or government bonds.

Fixed Index Annuities

This type of annuity is more complex than a fixed annuity. Fixed index annuities guarantee the protection of your principal from market losses. That being said, the amount of interest that they pay is tied to an underlying financial benchmark, such as the S&P 500 price index.

Fixed indexed annuities have what are known as crediting periods, which is a period of time in which interest is calculated and then credited. This period could be for a month, a quarter, a year, or even two years.

When the underlying index rises in value during a given crediting period, then a portion of its growth will be credited to the contract as interest. But if the index declines in value during the crediting period, the contract value merely remains the same.

In this way, your money is protected from losses by declines in the underlying index. There is a trade-off for this protection. The interest that a fixed index annuity earns is limited in some capacity, either by a cap, a spread, or a participation rate. Your financial professional can explain the pros and cons of this financial option for growth and income.

Variable Annuities

A variable annuity has the most growth potential of all annuity types, but it also carries the most market risk. The contract owner’s principal isn’t guaranteed in a variable annuity.

Money that is placed inside one of these contracts is invested in a selection of mutual fund subaccounts that rise and fall in tandem with the stock, bond, and real estate markets.

But while variable annuities carry the greatest amount of risk, they can also deliver the greatest potential for returns over time. Variable annuity contracts today usually come with several money management features, such as periodic rebalancing.

What Makes Sense for Your Retirement Goals?

Your financial advisor can walk you through all of these options. They can help you devise a comprehensive retirement plan that fuels your income needs and lets you live a comfortable retirement lifestyle.

Consult your advisor today for more information on annuities as a guaranteed lifetime income source and how they could benefit you. If you are looking for an experienced, independent financial professional to guide you through your retirement what-ifs, no sweat. Many independent financial professionals are available here at SafeMoney.com to assist you.

Use our “Find a Financial Professional” section to connect with someone directly. You can request an initial appointment to discuss your goals, situation, and explore a working relationship. Should you need a personal referral, please call us at 877.476.9723.

The post How Will You Draw Income in Retirement? first appeared on SafeMoney.com.