The biggest issue faced by retirees is running out of money. Even if you’ve saved wisely over the years, you just do not know how long you will live and if your money will last. However, depending upon your financial situation, there are predictable sources of income. Review the list below to understand where you stand and position yourself to know both your needs and income streams during retirement.
While the ubiquitous nature of pensions is a thing of the past, there are some of you who are in line to receive a pension. Understand when you are eligible and how much you are expected to receive on a monthly basis. If you fall into the category of folks who are increasingly being offered an early lump-sum buy out, be aware that that money needs to last you for the rest of your life. Do not assume you are rich!
Social Security offers retirees lifelong payments which are adjusted for inflation. It is unlikely that the payments can cover your monthly expenses, but you can predict how much you will receive. That is comforting. Additionally, you bolster the amount you receive if you ensure you have a full 35 years of covered earnings in the system and if you delay your payments until you reach age 70.
Your accumulated savings funds much of your retirement. Experts advise on drawing no more than 3-4% of your total annually to add to your revenue stream. You want to leave enough in your accounts to cover emergencies and, if well-timed and planned, to continue to grow. Your funds need to last all your post-retirement years; this can be as many as 30 or more years!
Annuities have risen in popularity in recent years. A basic immediate annuity is a contract between you and an insurance company. You pay the company a lump sum in exchange for pre-established monthly payments that last your entire life. This is another guaranteed that you can plan around. If you live longer than expected, you may receive more than you paid, and that’s a bonus; if you pass away early, you will lose money as the basic annuity does not pass along the balance to your heirs. You can add enhancements, called riders, to your basic policy that cover such a situation, but those enhancements will typically reduce the amount of your monthly payment.
Pay off your mortgage before you retire. The amount you would pay on the mortgage becomes another source of monthly income. If you need to, you can take a reverse mortgage or a second mortgage on your home, but only in the case of emergencies.
Obviously, you do not want to run out of money during your retirement. However, the threat is real and the key to success is to understand your potential sources of retirement income before you stop working. So, do your due diligence and position yourself to enjoy your golden years stress free.
Source: U.S. News & World Report