Gaining More Certainty in Your Retirement Income Plan
Relying on market performance to close the gap in your retirement income could let you down, but a CD ladder and fixed annuities could provide some certainty.
![An older couple look nervous as they look at the tape from an old-fashioned calculator.](https://cdn.mos.cms.futurecdn.net/T4cm9oaSXmJCcxbF7vSjTX-415-80.jpg)
Adjusting to life without a traditional paycheck and planning for retirement income can be one of the most intimidating aspects of transitioning from working to retirement.
After decades of receiving reliable income from an employer, retirees suddenly must create their own “paycheck” to fund their lifestyles using their Social Security benefits, a pension (if they have one) and the savings they’ve managed to pull together through the years.
The income planning process may often start with complicated questions like:
![https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-200-80.png](https://cdn.mos.cms.futurecdn.net/hwgJ7osrMtUWhk5koeVme7-320-80.png)
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
- Should you file for your Social Security benefits at 62, delay until you’re 70 to get more money or choose something in between?
- If you have a pension, should you take a lump-sum payout — if it’s available — or go with the lifetime annuity option?
- If you’re married, how can you avoid putting a financial strain on the surviving spouse when one of you passes away?
But that’s just the start. If your Social Security benefits and pension won’t cover all your costs, you’ll have to find a way to cover that gap. And for many retirees, that could mean over-relying on investments that are inherently unpredictable.
Traditional Way of Creating Retirement Income Could Be Risky
Creating dependable cash flow from your retirement portfolio can be a daunting assignment. And doing it the old-fashioned way — with a withdrawal plan that assumes the markets will consistently provide what you need — could put your retirement at risk. A withdrawal strategy based on market performance is not necessarily an income plan.
Yes, the markets always recover from those nasty downturns … eventually. And so can the securities in your portfolio … with time. But what happens if, in the meantime, you’re depending on your investments to help pay your bills?
It’s important to keep a couple of things in mind as you plan your retirement income:
- It’s much harder to rebound from a rough patch when you’re taking money from your portfolio than when you’re putting money in. And if a downturn or bear market occurs at the start of your retirement, it could have a significant effect on how much money you’ll be able to withdraw each year. If you stick with the withdrawal rate you originally planned, it’s unlikely your money will last as long as you need.
- Prior to retirement, it’s not a bad idea to focus on the “average rate of return” in your portfolio. (In fact, it could keep you from going a little nuts as the markets fluctuate.) But once you retire, it’s the “annual rate of return” that counts. It won’t matter much that your portfolio averaged 8% per year while you were working and saving, for example, if you lose 20% in your first year of retirement and you’re relying on your investments for income.
So, what are some ways that can help you create more certainty in your retirement income plan?
Even if you dial back your exposure to risk in retirement — by moving to a 60/40 stock-bond mix, for example, or even 50/50 — you could run into trouble. The stock market can be a good place to put your money when you’re looking for growth, and time is on your side. But in retirement, it’s wise to seek out strategies that will help guard the money you’ll need to live on.
CD Ladder Could Offer Safety and Flexibility
One way to potentially accomplish this is with a CD ladder, which can offer both safety and flexibility. Though you can’t expect crazy growth with certificates of deposit, like your parents and grandparents did in the 1980s, you won’t lose money. And because you’ll decide how long each CD’s term will last, you can be sure there will always be some money available when you need it.
Another possibility to consider is fixed annuities, which can be reasonably secure and can provide a monthly paycheck for life (similar to your Social Security benefits or an employer’s pension). Purchasing the right types of annuities for your needs can be more complicated than some other retirement strategies, so it’s a good idea to seek advice from an experienced financial adviser. But putting an appropriate portion of your money into annuities can be a useful way to shield yourself from the ugly downside of the markets.
Too Much in Cash Can Dampen Long-Term Performance
Though it might be tempting to keep a large stash of cash to tap for income when the market flounders, in most cases, I don’t recommend it. Keeping too much money in cash can be a drag on long-term performance, and it could result in you slowly going broke.
Keep in mind that your retirement income plan also should be structured in a way that helps minimize the bite inflation and taxes can take.
Did I mention that creating a retirement income plan can be daunting?
If you aren’t sure where to start — or if you’re worried you won’t have enough to get across the finish line — don’t hesitate to ask for assistance. Winging it is not the answer. A retirement professional can help you understand what you’ll need and how to build a paycheck you can rely on.
Kim Franke-Folstad contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
Investment advisory products and services made available through AE Wealth Management, LLC (AEWM), a Registered Investment Advisor.
Insurance products are offered through the insurance business Hill Wealth Management dba: Freedom Financial Group. Hill Wealth Management dba: Freedom Financial Group is also an Investment Advisory practice that offers products and services through AE Wealth Management, LLC (AEWM), a Registered Investment Adviser. AEWM does not offer insurance products. The insurance products offered by Hill Wealth Management dba: Freedom Financial Group. are not subject to Investment Advisor requirements. Neither the firm nor its agents or representatives may give tax or legal advice. Individuals should consult with a qualified professional for guidance before making any purchasing decisions. Our firm is not affiliated with or endorsed by the U.S. Government or any governmental agency. Investing involves risk, including the potential loss of principle. 1549011 – 11/22
Get Kiplinger Today newsletter — free
Profit and prosper with the best of Kiplinger's advice on investing, taxes, retirement, personal finance and much more. Delivered daily. Enter your email in the box and click Sign Me Up.
Cole Czajkoski is a retirement planner and Investment Adviser Representative with Freedom Financial Group. He graduated from Auburn University with a bachelor’s degree in marketing and holds a Series 65 securities license as well as life and health insurance licenses. Cole helps build retirement plans for new client families, and he assists with many of the behind-the-scenes functions at the firm.
-
Visa Is the Worst Dow Stock Wednesday. Here's Why
Visa stock is down sharply Wednesday after the credit card company came up short of revenue expectations for its fiscal Q3.
By Joey Solitro Published
-
Another Analyst Moves to the Sidelines on Tesla Stock After Earnings
Tesla stock is spiraling Wednesday after the EV maker's big earnings miss and Wall Street has been quick to weigh in. Here's what you need to know.
By Joey Solitro Published
-
Confused by Annuities? Making Sense of the Different Types
Many investors aren't sure if annuities are a good option for meeting financial goals. Let's look at the different categories, along with their pros and cons.
By Kris Maksimovich, AIF®, CRPC®, CPFA®, CRC® Published
-
Talkin' 'Bout My Generational Wealth: Baby Boomers
With retirement, each generation has different priorities and challenges. For Baby Boomers, it's a matter of ready or not, here it comes.
By Alvina Lo Published
-
How to Avoid a Big Hassle if Your Financed Car Gets Wrecked
How an insurance check is made out for repairs can cause a world of problems if the lienholder is left out.
By H. Dennis Beaver, Esq. Published
-
Estate Planning Strategies to Consider as Election Nears
Are big changes in tax laws coming soon? Not likely, but you might want to take advantage of higher estate and gift tax exemptions well before the end of 2025.
By David Handler, J.D. Published
-
How to Get Your Money's Worth From Your Financial Adviser
A good financial adviser will focus on how your financial planning and investment strategy align with your lifestyle and aspirations.
By Pam Krueger Published
-
Think of Prenups and Postnups as Financial Planning Tools
These contracts provide a clear framework for asset management and protection and are especially useful if you get married later in life.
By Andrew Hatherley, CDFA®, CRPC® Published
-
Congratulations on Your Raise: Three Things to Do With It
We're not saying you shouldn't spend it on a new car, but there are some considerations to guard against lifestyle creep and to help ensure a comfy retirement.
By Andrew Rosen, CFP®, CEP Published
-
Check Off These Four Financial Tasks to Finish 2024 Strong
The new year is a popular time to set financial goals, but now is the ideal time to check how you're doing. Four tweaks could make a big difference.
By Daniel Razvi, Esquire Published