A Retirement Income Planning Primer
A Retirement Income Planning Primer
Delivered courtesy of Stephen Cunha, CFP, C(k)P, CLU, CLTC, Baystate Financial Services
When it comes to retirement planning, individuals need both a map and directions, along with someone to help them on their journey. Particularly for those who may have been greatly affected by the market swings in the last few years, creating a reliable income stream in retirement may be the furthest thing from one’s mind. However, taking a few small steps now can lead to large rewards in the future.
· Save, save and save
Start off with the basic principle of money management saving. Whether you’re saving for a car, a new home, college or a vacation, saving for retirement is no different. Make every effort to save the maximum allowed by your defined contribution plans—that is, i.e. 401(k)s or 403(b)s. And, be sure to at least set aside enough to get the employer matching contribution. If you’re already making the maximum contribution, consider funding an individual IRA. If you change jobs, don’t forget to take your retirement money. In some cases, as in 401(k)s, you may be allowed to roll the contributions over into your new plan or into a traditional IRA. Taking a lump sum distribution will be a taxable event (based on your ordinary income tax rate), and you could incur a 10% income tax penalty for taking distributions early, before age 59 ½. Many younger workers make this mistake.
· Take steps to create reliable income
There is no magic number, but 60 percent of pre-retirement income before tax is a good starting point for income to cover essential expenses in retirement. Social Security and pensions are great sources of dependable income, but most people will need more stable, lifelong income. Start protecting your future income by putting a portion of your savings into an annuity and adding to it over time, or purchase an income annuity when you retire to cover any remaining expense gaps. Through annuitization, these products can provide a guaranteed income stream during retirement that will help supplement Social Security and pensions.
· Have liquidity AND growth
Having cash on hand for the unexpected is smart. There could be an unexpected expense, such as a health need, a job loss or a change to your income – perhaps from an earlier-than-planned retirement date. Keep in mind, too much cash in the bank earning little interest can be detrimental to your retirement savings. There are a number of financial products that can let you access some cash when it’s needed and still keep your money working hard for you. For a list of the options, as well as what makes sense for you, consider speaking with a financial services professional who can suggest products and services to help meet your needs.
· Know what you want your retirement to look like
Many of us know that we may need to work longer in order to save for retirement. For some, the idea of retirement may be spending time traveling or fulfilling a lifelong urge to go back to school for higher education. For others it may be spending days working part-time or volunteering at a non-profit near to your heart. Figuring out what you may want you retirement to look like, will also help you take the steps necessary to get there.
This article appears courtesy of Stephen Cunha, CFP, C(k)P, CLU, CLTC. Steve is a Retirement Plan Coordinator for Baystate Financial Services and a Financial Planner offering retirement plan consulting and fee-based financial planning services through New England Securities Corporation (NES),and or Baystate Wealth Management, LLC, both registered investment advisers, Boston, MA 02116. He focuses on meeting the needs of retirement plan sponsors and retirement planning needs of individuals approaching retirement. You can reach Steve at www.RetirementCFO.com. Securities, including variable products offered through New England Securities Corporation (NES) Boston, MA 02116. New England Financial is the registered mark for New England Life Insurance Company (NELICO), Boston, MA 02116. NES and NELICO are affiliates and both are MetLife companies. Neither New England Securities nor its representatives offer tax or legal advice. Please consult your tax advisor or attorney for guidance.