I’m sure you’ve heard how important it is to plan your retirement ahead of time, right? Sometimes that’s easier said than done. Here are a few income strategies to help you live the life you want after retirement.
Overall, your income in retirement depends on three core aspects:
- How to maximize your retirement savings while you’re still working
- How to minimize your expenses after you retire
- And how to continue to generate cash flow
Here we will go over the top 5 retirement income strategies from saving to growing so you can feel financially protected and secure after your retirement.
When To Retire
The first, most significant question to ask yourself is when you want to retire. Currently, the full retirement age (FRA) in the United States is “66 years and two months for those born in 1955 and will gradually increase to 67 for those born in 1960 and after.” However, in reality, most individuals hope to retire before that age.
Nonetheless, the reality is that the hope to retire with financial security seems quite dim right now, especially after the Covid-19 pandemic. According to CNBC, 41% of respondents who participated in a recent retirement confidence survey indicated that “achieving financial security in retirement is ‘going to take a miracle.’”
So, what are some of the best retirement income strategies that can help make your retirement dream a reality?
Maximizing Social Security
One of the first things you should look into is maximizing your social security benefits. Typically, waiting to receive your benefits until your full retirement age allows for a smoother transition into retirement. If you can afford to wait, when you do start receiving benefits, your patience could pay off greatly for your retirement plan.
Depending on the circumstances and the state you’re in, you may also qualify for additional benefits, such as supplemental benefits, disabilities, and spouse benefits. Check your state’s social security website and learn about all these supportive programs, so you don’t miss out.
Interested in setting up your retirement plan today, we’d love to help! You can reach out to our BentOak team today to schedule an appointment.
Annuities are another popular method to generate cash flow after retirement.
An annuity is a contract between you and a provider, often an insurance company. The way it functions is quite simple. Basically, you “deposit” — pay — a certain amount according to your contract, then receive a monthly payout for the rest of your life.
There are two primary types of annuities:
- Immediate annuities where you pay a lump sum upfront and your monthly payment begins right away
- Deferred annuities where you pay an agreed amount regularly, similar to building up a savings account, but don’t receive payouts until years later.
Of course, there are pros and cons with annuities like all other retirement income strategies. For example, many point out that the monthly payment is not as high as they thought. Therefore, it’s best to get professional opinions from someone like a financial advisor before buying an annuity.
Continue to Generate Income
Not working at all might sound tempting, but it poses significant risks to your financial wellbeing. Therefore, even after you retire, you should still figure out ways to generate income.
Some retirees end up getting a part-time job, which brings in some cash and keeps them occupied, as people often indicate they feel bored after some time in retirement. You can also look into generating passive income by buying rental properties or building an investment portfolio of stocks and other assets.
To maximize the income you generate after retirement, speak with a comprehensive financial advisor as soon as possible. These professionals can help you understand your cash flow structure, help you build passive income streams, and make sure you stay on track before and after retirement.
Health Savings Account (HSA)
In addition to traditional retirement savings accounts, you should consider including a health savings account as part of your retirement income strategy.
You will only qualify for an HSA if you have a qualifying high-deductible health plan. Unlike IRAs and Roth-IRAs, there is no mandatory distribution requirement to HSAs. You can keep your money in those accounts for as long as you wish.
However, keep in mind that HSA funds can only be withdrawn for qualifying medical expenses. Otherwise, you face a 20% penalty. However, this restriction lifts once you hit age 65.
What is the systematic withdrawal approach?
Basically, you take out a certain amount from your savings account in the first year of retirement, then slowly increase this amount every year after. The reason for doing so is to counter the impact of inflations. A popular rule used for systematic withdrawals is the 4% rule, as in you should not withdraw more than 4% of your “nest egg” money.
It is essential to understand that you still need to have certain flexibilities even if you’re using the systematic withdrawal approach. For example, if your investment takes a hit, you may need a larger withdrawal to cover that loss and prioritize your financial security.
Planning For Retirement
Retirement planning is a comprehensive process that must consider all possibilities. For example, what kind of life do you want after retirement? Do you plan on leaving a legacy behind for your family? What if something unexpected happens — would you be able to give the proper financial response?
Therefore, it is vital that you work with a professional planner who has your best interest in mind. These individuals are equipped with the knowledge needed to put your expectations into actionable plans so you can stay on track for retirement.
Retirement Planning with BentOak Capital
Are you ready to take control of your retirement plan? Would you like to partner with an experienced team that can help you manage your wealth?
If so, then it’s time to contact BentOak Capital. We offer comprehensive financial planning services to clients including retirement planning. You can reach us by completing the form linked above or by calling one of our three Texas-based offices.