Turning Retirement Savings Into Income
Make Your Money Work For You!
A comfortable retirement means different things to different people, but one universal definition could be the ability to maintain your lifestyle when you’re no longer drawing a salary. This doesn’t consider the numerous other things that might define your retirement (things like owning a business or pursuing different types of work). Still, one of the big needles to thread when considering your retirement is: What will be the source of your money?
Devising Your Retirement Distribution Strategy
The money put aside for your golden years may have two jobs: sustaining you for the rest of your life, and leaving a legacy for your loved ones. According to the Employee Benefit Research Institute's 2020 Retirement Confidence Survey, 69% of American workers have confidence in their ability to see steady income throughout their retirement. However, that number sinks to 27% when asked if they are "very confident." The good news is that, with the right information, you may be able to make informed decisions about how long your money needs to last.1 One of the reasons financial professionals get to know their clients so closely is that we need a clear sense of who you are in order to help devise wise strategies. Among those key data points is your life expectancy. With that timespan in mind, the next step is examining where you're at with your money. Your retirement plans play a role. Other critical factors are Social Security and how much income you expect to receive from month to month.2
Turning Savings Into Income
Turning a growth plan into a retirement income plan can be built using certain assumptions. In this example, a hypothetical investor (let’s call her Veronica) has accumulated $500,000 by age 52. Veronica wants to see how that could help generate a portion of her retirement income. Applying a hypothetical 6% annual return, Veronica’s $500,000 portfolio would increase to $1.2 million by age 67. Veronica’s portfolio is structured to earn a hypothetical 4% annual return starting at age 68. She could take a $50,000 annual distribution, increasing that distribution by 3% each year until age 90. After her 90th birthday, Veronica’s portfolio will have generated $1.7 million in total income, and she will still have $400,000 to distribute to beneficiaries.
Turning A Growth Plan Into An Income Plan
There's no shortage of things to consider when shifting from a saving-focused strategy toward an income strategy. It's important to remember that once you reach age 72, Required Minimum Distributions (RMDs) begin to apply to IRAs and other retirement products. Failure to take the RMD by the end of the year may result in an "excess accumulation" penalty. RMDs at 72 also apply to your workplace retirement account, but you also need to wait until you reach 591⁄2 before taking any withdrawals or face a 10% tax penalty. As part of the SECURE Act, workers over 72 can still contribute to an IRA or other retirement account, depending on specific circumstances.
Remember, you're not alone. We’re here to help you turn your collection of financial resources into a comfortable retirement, to offer guidance and suggestions on how to stretch your money across your golden years, and even to help you build something for your loved ones. It's a privilege we don't take for granted.
Contact Skylight today visiting www.skylightfinancialgroup.com.
Adapted from Platinum Advisor Strategies
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1 EBRI.org, November 11, 2020 2 SSA.gov, November 11, 2020