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Income in Retirement – Shifting Paradigms

By Rashida Lilani CFP® CMFC

With an unprecedented number of adults expected to live well into their eighties and nineties, the need for generating consistent, steady income in retirement is becoming critical in the new millennium.

Over the last couple of decades, the paradigms for retirement planning have completely shifted. The tried and true methods for retirement income sources are not enough or even working anymore. Lower interest rates are making investing in low-risk, fixed-income investments such as CDs no longer a viable option. Pensions are becoming a thing of the past for many private sector workers. At the same time, planning for retirement income is becoming extremely important as lifespans get longer, housing costs keep rising, and healthcare and long-term care costs continue to escalate.  

Let’s take a look at some common sources of income in retirement:

Social Security:

Although never intended to be the primary source of income, Social Security today provides monthly disbursements of about $835 billion per year.  Over 60 percent of Americans derive their primary income from Social Security.

The recent financial crisis and chronic, slow recovery of the economy, along with the projected shortfall of Social Security benefits in the future, have caused an overwhelming number of individuals to apply for benefits prior to full retirement age.  Doing so may help with current cash flow but it is important to understand that benefits, when claimed early, can be reduced by as much as 25% and stay reduced for the rest of the beneficiary’s life. 

Social Security benefits can be a welcome and much needed source of income for survivors as well. Spousal benefits are important to understand and there are unique planning strategies that can be utilized to optimize benefits. Additionally, individuals can collect on a former spouse’s benefits if the marriage lasted for at least10 years and the beneficiary is not currently married.  

For additional information, go to www.ssa.gov.


For those fortunate individuals who are eligible to collect an employer’s pension, there are usually several different options to claim income. If married, one should consider claiming the Joint or Survivor Annuity option which would pay a reduced benefit to the beneficiary but will continue the income for the surviving spouse. 

Savings and Investments:

Personal savings and investments can play a significant role in providing income in retirement.  Employer sponsored plans such as 401(k)s or Individual Retirement Accounts (IRAs) usually constitute a large portion of an individual’s savings for retirement. These accounts are usually tax-deferred and withdrawals are taxed as ordinary income.

It is important to invest the funds in these accounts based on the account holder’s time horizon, risk tolerance and investment objectives. Please consult with a tax advisor and a financial planner to determine the right mix of investments for your accounts. 

Part-Time Work:

The shift in paradigm has been the most significant in this area. Many retirees are choosing to or are required to go back to work part-time. Working part-time can be a good way to provide supplemental income which in turn can help prolong the life of investment portfolios by allowing distributions to be delayed to later years. 

One thing to consider though is if Social Security benefits are claimed prior to full retirement age, income earned in excess of $15,720 (for 2015) can reduce benefits by $1 for every $2 that’s earned over that limit. However, unlike the reduction in benefits for claiming early, this reduction is temporary and benefits are restored once the retiree reaches full retirement age. 

Real Estate Investments:

Rental income can be another source of income in retirement. Like any other investment, there are several pros and cons.  While the tangibility of the investment may appeal to some, the responsibilities and costs that come with being a landlord can be a deterrent for others. Consider your options wisely and consult with a professional.   

Personal Residence:

I usually don’t consider personal residences in determining sources of income.  However, substantial equity in your home and a depleting savings account can leave you house rich and cash poor. If you have equity in your home, you can tap into it or down-size and move to a smaller abode.  Additionally, you can even consider getting a reverse mortgage. Consider the risks and consult with a specialist when considering any of these options. For reverse mortgage information, go to reversemortgage.org.

As with any type of planning, planning for retirement income needs to be done pro-actively and with care and prudence. It is best to consult with professionals who can guide you in creating the most optimum retirement income plan for you. 


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