Do You Have Enough Income to Retire? That Is the Question

Question marks written on sticky notes are scattered across a table. — (Image credit: Getty Images)

It’s a mistake to think about retirement only in terms of your savings. I’ve written about this before, but many people — including a lot in the media — aren’t listening.

Recent articles bemoan the outlook for people who are serious about retirement — especially so-called late Boomers, who were born between 1955 and 1964. Blame the Great Recession and the pandemic.

While savings are obviously relevant, the measure of a happy retirement also relies heavily on making post-retirement income planning a critical part of the decision process.

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How do you find your way through the tangle of advice from media, friends and perhaps your adviser?

Focus on retirement income, but don’t lose sight of other considerations, like legacy and liquidity. Most important, wherever possible, test whether a particular product or strategy improves your income and other objectives.

It's not savings — it’s income

With an actuarial background, I guess I was drawn to the unique ability of income annuity contracts issued by insurance companies to deliver lifetime income, and I patented the Income Manager contract and Retirement Management Account to widen their appeal.

While I was early to consider income allocation (vs asset allocation) when planning for retirement, I am joined by some big thinkers, including Robert Merton, a winner of the Nobel Memorial Prize in Economic Sciences. He was an early adopter, having written about “assets vs income” in the Harvard Business Review as early as 2014.

A plan for retirement income is about two things — a plan and income.

The challenge is that some planning software and some advisers don’t consider all products or ideas. Fortunately, you are curious enough to read this article, and Go2Income has the modeling capability to test whether a product will be helpful for you. (Over the next few months, Go2Income will add another two financial products to its planning that often don’t make the cut when viewed as standalone options.)

Putting your plan to the test

Over the rest of this article, I’ll show you how adding a new product category can improve the income efficiency of a plan.

Investment portfolios only: This is the choice of many investors and advisers since it’s what they followed during their working years — and so accumulation morphed into de-accumulation. It’s a reasonable starting point for planning, and using the Go2Income model and an allocation to stocks of between 30% and 40%, it produces first-year income of 4% and substantial liquidity for our model investor. She’s a female, age 70, with $2 million in retirement savings split evenly between a rollover IRA and personal (after-tax) savings.

Not bad, but consider two more product categories (not universally embraced) to see how they can boost your income even more.

Adding annuities: There are a number of naysayers who attack the annuity category without even analyzing whether it helps or hurts a plan. That’s why I first invented Go2Income. I needed to see exactly how much to allocate to annuities, which annuity types, and to which accounts. While I recognized the direct effect would be more and safer income, it was not until we integrated annuities into a plan that we appreciated the long-term legacy and inflation protection a plan could provide.

What happens under current Go2Income planning? You will add income guaranteed for life, and as calculations for our model investor show, it is possible to enjoy starting income of nearly 6%.

Adding equity from your home: There’s no question that if you own your own home in retirement, it becomes part of the planning. The conversation is usually about the expense and possibility of downsizing. It’s rarely about the house as a source of income. Well, we believe that like with everything else, we should “go to the scoreboard” and see if one way to generate income — a reverse mortgage — can be helpful.

It turns out that this third addition, combined with the other two, puts starting income for our model investor above 6.5% and above what you get by relying on investment portfolios alone. We were able to increase the income from the original 4% by nearly 60% and reduce taxable income. It also provides more liquidity.

In other words, the products are the means to reach your goal. They are not something to love, hate or ignore. Rather, if the tests show they will increase your retirement income, use them. If not, look for other ways to meet your needs.

Testing is not the final step

With the income, tax impact and legacy you have optimized, there are other key questions to ask about the plan:

Replanning. How easy is it to adjust your plan to market conditions or lifestyle events?
Safety. How much of the income is safe and is lifetime?
Convenience. How much income is automatically deposited into your bank account?
Liquidity. How much of your savings is available for unplanned expenses?
Tax efficiency. Does your plan set you up to pay as little in taxes as legally allowable?

Bottom line, a plan is about more than your savings. It’s about income as well — how much, how safe and how managed.

Get started with a plan for retirement income that answers all your questions. Visit Go2Income, answer a few simple questions and start testing a plan that suits your specific needs. It’s easy, and our support staff will be available to help you through the process.

Disclaimer

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.

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