Time to Re-Think Your Retirement Plan

The market collapse led many people to delay retirement, while some people who had already retired went back to working part time. People question the strength of the Social Security system and wonder how that should factor into their decision-making.

It is quite important to secure your future after you retire.  A lot of people are starting to realize the fact that they need to think deeply and plan perfectly for their retirement solutions.  Yet financially, mentally, and culturally, Middle Americans are terribly unprepared to fund their third stage of life.” 

Retirement is not the same for everyone, you may not want to fully retire or you may choose to “spend more” in retirement than you did while you were working.  However, almost half of Middle Americans have ‘extreme difficulty’ understanding most financial information, and more than half think retirement planning is harder than raising kids.

So where do they go for advice? Not to professional financial planners, not to the financial services industry—they rely on relatives, friends, and co-workers.

The lack of professional direction shows up in a lot of unrealistic expectations: though only 12 percent of retirees have jobs, more than three-quarters of Middle Americans approaching retirement are confident that they’ll need to continue making money after they retire.

You will have spent the majority of your life on the path to a goal, – Financial Independence – the ability to do what you want, when you want, for as long as you want. Ah, what a great feeling this will be… but what is it you want to do and will you be able to do it?

THE financial crisis has been a boon for firms carrying out surveys. They all want to know if we’re scared of redundancy, home repossession, spiraling debts or our pensions becoming worthless.

Everyday rising household costs of food, gas, and electricity utility bills are the biggest concern to retiree’s. Seven out of 10 say they are worried by these increasing costs. There’s no way to know if we’ll have to continue living with such volatile prices but it makes sense to take action to soften the blow, just in case.

What do you do if you find that your sources of fixed retirement income, such as employer or military pensions and Social Security, aren’t enough to meet all of your retirement income needs?

To make up the difference, you can draw from your savings and investments, but how much can you safely withdraw without running out of money?

One option is to create a stream of income for the rest of your life by investing some of your savings in an income annuity.  In exchange for a lump sum of money, the issuer promises to make payments to you for a fixed period of time or for the rest of your life, or for the rest of your life and that of your spouse. 

You should consider an income annuity if you want a guaranteed income to fill the gap between your retirement income needs and your fixed retirement income.  

Immediate annuities — this type of annuity allows for the immediate option of payments begin as soon as they are purchased. Although immediate annuities are geared towards a single lump-sum payment from an inheritance, settlement or sale of a home you can also arrange to receive your money in regularly scheduled payments. You may also fund your annuity with distributions from a 401K or an IRA.

You generally can choose how long your income annuity payments will last. For example, you can choose to receive payments for the rest of your life. This option allows you to supplement lifetime income from other sources, such as Social Security.

To ensure that your spouse continues to receive income after your death, you can select a joint and survivor payment option. The annuity will make payments to you, then at your death, to your surviving spouse until his or her death. Payments end at the death of the surviving spouse, with no benefits payable to your heirs.

Other factors to consider

Payments from income annuities funded with pretax dollars, such as 401(k) s and IRAs, may be subject to income tax. Income annuities purchased with after-tax funds are taxed only on the earnings part of each payment. The remaining portion is considered a return of your investment and is not subject to taxation.

You can contribute to an annuity with a lump-sum investment or you can make regular payments to your annuity over a period of time. However, it is important to understand your options for annuities before you decide if they are right for you. 

Annuities offer no income restrictions on contribution eligibility and there is no limit on how much you can contribute to them. Annuities can provide additional tax-deferred growth opportunities to help supplement your retirement savings.