When Retirees Question More Retirement Income

What would you say if I told you that you could safely get significantly more retirement income from your retirement savings? That’s what I call an Income Boost.

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If your boss had offered you a pay raise totaling $375,000 from age 40 to retirement at 65, your first reaction would probably be joy, followed by relief knowing that your retirement finances would be in good shape. Then you might ask some questions. Like, what do I have to do to earn that money?

I have observed the same kind of skeptical questions when it comes to an even greater increase in income during the 25-year period from retirement at age 65 to age 90. I described the basis of that increase in an article that compares the income from Income Allocation planning to the income from a typical Asset Allocation plan. Income Allocation planning can be the source of a more-than $375,000 Income Boost (based on $1 million in retirement savings) because it:

  • Emphasizes secure sources of income, including high-dividend stocks and annuity payments.
  • Allocates income to the most tax-efficient savings sources.
  • Relies less on higher-risk withdrawals of capital, enabling retirees to stay the course.

I understand the skeptical questions, however. When you count on your retirement savings, together with Social Security, to produce the bulk of your retirement income, it is wise to be careful.

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On the other hand, it is smart to consider and investigate new approaches. Some of them might result in a much better retirement. Smart investors have lots of questions about new ideas. I will answer the questions regarding the Income Allocation planning method and the Income Boost it produces in the sections below.

If this Income Boost is possible, why hasn’t my investment adviser presented it to me?

I have been asking that same question for years. Most advisers, in my experience, rely solely on Asset Allocation planning — splitting your savings among numerous investment options — and formulaic withdrawals from these savings. Their personal interest is often in managing those savings for as long as possible.

Income Allocation, on the other hand, delivers lifetime income. Here’s how it works: You determine your income and legacy objectives, and then the Income Allocation planning method finds the sources of income that will meet those objectives with the least amount of risk.

A key differentiator for an Income Allocation plan is including annuity payments as a large income source, since they provide guaranteed income for the rest of your life. Not all advisers offer annuity payments as an income option, and even fewer have the experience in how to integrate them into their planning.

I do believe that your Income Boost is possible. But there must be other “gotchas.” Right?

One concern often mentioned is that annuity payments, which can end with the passing of you or your spouse, reduce the amount of savings that would otherwise go to your kids, grandkids or favorite charity. Of course, a retiree can buy an income annuity that guarantees that the investment in the annuity will be paid out even at early passing. Or if you own life insurance, that can mitigate that risk as well.

Another perceived gotcha is that the income annuity is not liquid. It’s important to understand that under the definition of liquidity, most of your invested savings are not truly liquid, either. While you can take withdrawals from your investment accounts under Asset Allocation, future income from that source will be reduced. (Liquidity is defined as having access to money without any other financial effect.)

And remember that only a portion of your savings — typically 25% to 40% — would be invested in income annuities under an Income Allocation plan. The right mix of stocks, bonds and cash, with Income Allocation’s lower fees and taxes, will allow you to build a significant financial legacy. (For more on tax savings, please see How to Lower Your Retirement Tax Rate to Less Than 10%.)

I like my current adviser. Won’t I have to fire my adviser?

Keep your current adviser for the portfolio management of the 60% to 75% of your account that remains in the markets. At the same time, you can still follow the Income Allocation plan management service. You will keep your adviser happy — and save on fees.

Suppose that your adviser charges annual fees of 1% of the value of your portfolio, which is now at $1 million. That would mean you pay portfolio management fees of $10,000 a year. If you allocate $300,000 to lifetime annuity payments, your adviser will be managing $700,000, for fees of $7,000 a year. Go2Income’s plan management fees, by the way, will be $900 per year. Overall, you will be spending $7,900 a year, an annual savings of over $2,000 per year that goes in your pocket.

I’m still nervous. Is your Income Boost really worth the effort?

They say that the eighth wonder of the world is the magic of compound interest. In planning for your retirement, $10,000 invested at age 40 and each year thereafter to age 65 is worth more than $550,000 at retirement, assuming a long-term return of 6% per year.

There is an equivalent wonder after retirement. It’s the power of generating more income than you need. If you can generate $10,000 of additional income per year through an Income Allocation plan at age 65 and each following year, then 25 years later at age 90 your accumulated income will be worth $550,000 or more, assuming that same 6% growth rate.

Those kinds of numbers can change your retirement. You will leave a larger legacy than you ever expected. Or you’ll have funds to pay for caregiver or unreimbursed medical expenses that are more likely to occur late in retirement. Or maybe you can think of another way to spend the money. The possibilities are endless when you get a nice Income Boost!

To calculate your Income Boost click go2income -income boost (opens in new tab). After finding out the Income Boost you can get, you can design an Income Allocation plan on your own, or talk with an adviser-counselor (opens in new tab) to answer your questions.

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Jerry Golden, Investment Adviser Representative
President, Golden Retirement Advisors Inc.

Jerry Golden is the founder and CEO of Golden Retirement Advisors Inc. (opens in new tab) He specializes in helping consumers create retirement plans that provide income that cannot be outlived. Find out more at Go2income.com (opens in new tab), where consumers can explore all types of income annuity options, anonymously and at no cost.