When You Retire, Will You be Able to Stay Retired?

By Morgan Hill

This is a question on the minds of many people as they get closer to retirement. Income planning is one of the key components to a peaceful and fulfilling retirement. Here are some basics about income planning for future retirees:

  To be able to retire, we need income.
  To stay retired, we need reliable and sustainable income.
  To preserve our standard of living, we need increasing income.
  During income planning sessions, two key areas must be addressed:
   - Maximizing Social Security
   - Maximizing other assets to create income

Today, fewer and fewer companies offer a pension. As a result, it is critical to get the most out of Social Security and other assets.

As most investors know, Social Security was developed and implemented under the administration of Franklin D. Roosevelt during the Great Depression. It was created as a safety net for many Americans. Today, most people regard Social Security as a source of income that will help during retirement, but it does not meet all of ones income needs.

Unfortunately, few people understand how to actually get the most out of their Social Security benefits. There are many rules that govern Social Security and hundreds of ways to take it. Some people make quick decisions because they fear Social Security will run out of money. Others are just not aware of their options, and as a result, they leave lots of money on the table.

The expertise and planning software of Boston Universitys Professor Laurence Kotlikoff is a wonderful tool. Dr. Kotlikoff is regarded by many as one of the leading experts on Social Security in the United States. Utilizing the proper tools along with investors asking themselves a series of key questions can help them get the most from their particular set of circumstances.

The second portion to income planning is getting the most out of other assets. People are often told that there are really only two places to invest their money; they either place it with a broker or advisor and assume some level of market risk with those investments, or they place the money in the bank and suffer the interest rate risk associated with this low-rate environment we have been in for some time.

In one environment, investors may lose when the market drops, and in the other, they may never gain because rates are so low. Since people are living longer, these two scenarios pose their own set of problems when it comes to income planning. As a result, a unique approach centered on Three Worlds of Money was developed to address this problem.

Over the years, it has been shown that people really want three things from their money. When times are good, they want to make a reasonable return. When times are bad, they truthfully dont want to lose a penny. And finally, when they need money for emergency or pleasure, they want to be able to access it. The problem is that no one can get all three things from any one place. Therefore, they  need at least three places to put their money versus just using two. The third area that is necessary to create income that is guaranteed is where investors can link their gains to the market without the underlying risk of the market.

There are a number of tools that fall into this category. Tools such as market-linked CDs, structured notes and fixed indexed annuities are all able to participate in market gains without risk to principal, and with some tools, cumulative gains. Fixed indexed annuities are very popular tools to create guaranteed streams of money for retirement income. These varying strategies are vital in order to have peace of mind during retirement years.

Morgan Hill is a financial advisor and planner at Hill & Hill Financial. 770-672-0402. HillAndHillFinancial.com