Retirement Income

Are you worried you won’t have enough money to live comfortably in retirement? If so, you’re not alone. Nearly half (46 percent) of Americans are concerned about running out of money in retirement. While that figure is alarming in itself, an additional 39 percent of Americans say they are not even familiar with their retirement strategy options.1

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When it comes to your financial future, running out of money is not an acceptable outcome. You should have confidence that the money you worked your whole life to save will be there throughout your retirement. Thankfully, through the Retirement HQ network of advisors and agents, you have access to retirement income specialists who have the training and expertise to help develop a plan to make your money last.

What are the main sources of your retirement income?

Your income during retirement will likely come from a variety of sources, some more protected than others.

  • Social Security*
    This federal government program likely will provide income starting as early as age 62, or as late as age 70, depending on when you decide to start receiving your benefits. Benefit payments are based on how much you paid into the program while working and the age at which you begin taking benefits. However, this program is not meant to cover all of your retirement expenses. For this reason, you will probably need to supplement Social Security payments with income from other sources to make ends meet.
  • 401(k)s or Pensions
    An employer-sponsored retirement plan such as a 401(k) or an employer-provided pension may be available to you. While not all employers offer a 401(k) option, even fewer employers are providing pensions these days. In fact, a recent study found that 78 percent of Americans felt that the disappearance of pensions has made it harder to achieve the American dream.2
  • IRAs
    Individual retirement accounts (IRAs), either traditional or Roth, are an income source for many retirees. When you retire, you have several options for what to do with these accounts. Rolling over from one qualified plan to another qualified plan allows your money to continue growing tax-deferred until you receive distributions in retirement. However, the fees and costs associated with rollovers and premature distributions may be high. They could also result in the inability to use net unrealized appreciation. It’s a good idea to consult with a financial professional before making changes to these types of accounts.
  • Investments
    Equity-based investments such as stocks, bonds and mutual funds may also be a viable income source for many retirees via dividends or by liquidating these assets. That said, some investment options have higher levels of risk than others. More conservative retirement strategies that still provide options for wealth accumulation, participate indirectly in the stock market and offer guaranteed** income in retirement — like annuities — are available.

What are some of the biggest risks to my retirement income?

In a recent survey, more than 500 advisors identified the five most common risks to retirement income:3

  1. Market volatility is the risk that the value of stocks, bonds and other assets will drop, curbing a retirement nest egg’s ability to produce income. Diversifying your retirement assets among a variety of vehicles — including a mix of insurance and investment products, depending on what is appropriate for your situation — may help you meet your retirement income goals. Guaranteed** income products, such as annuities, can provide supplemental income throughout retirement and help you protect your money from declines due to stock market losses.
  2. Longevity risk is the risk a person will outlive their retirement nest egg. Life expectancy in the United States is at an all-time high. While that’s great news, figuring out the best way to make your savings stretch over the next 25 to 30 years can be both confusing and overwhelming. That’s why it’s a good idea to work with a seasoned financial professional with experience creating income in retirement.
  3. Health care cost risk is the cost of medical treatment and other forms of health care you may need in retirement. You may be healthy now, but there’s no way to guarantee you’ll always be that way. As you age, your health care needs may increase. Any costs that insurance or Medicare don’t cover likely will come directly out of your retirement income. With health care costs continuing to escalate, it’s important to have a strategy for how you’ll cover those costs in retirement.
  4. Inflation risk comes into play when prices increase (inflate) — in turn increasing your overall cost of living. As a result, your retirement income won’t go as far. It may be surprising how much inflation can erode purchasing power, not to mention how it can quickly deplete your savings when you no longer have a regular paycheck. It’s important to consider the effects of inflation on your future standard of living, and plan now for how you’ll cover those expenses in retirement.
  5. Long-term care coverage: Many retirees or pre-retirees will require some form of long-term care during retirement. The cost of that care (in-home nursing, assisted living, etc.) is often high — and it, too, is rising. Once again, whatever costs aren’t covered by insurance or Medicare may come directly out of your retirement income. You may want to consider planning ahead for these potential expenses, and a qualified financial professional can help you do just that.

What about annuities?

Aside from Social Security, few income sources are guaranteed to last a lifetime.*** Not to mention, Social Security payments typically aren’t adequate to meet a person’s full income needs. Annuities can help fill that void, however, as they are an insurance product designed to provide its owner with an income stream they can’t outlive.

In a recent survey, 84 percent of Americans said having a guaranteed monthly income for the rest of their life is important to them.4 Annuities are a versatile product that can provide exactly that. A fixed index annuity, for example, can provide an income stream for a guaranteed period of time or for a lifetime***, which helps address your longevity risk.

Annuities also provide retirees with access to features that address other risks to their retirement income. Some annuity contracts offer an inflation-protection feature (for additional premium). Others include protection from market downturns, thus addressing market risk. Some even come with a rider (for additional premium) that allows the contract owner to access annuity funds to cover long-term care costs. All guarantees made by any annuity are backed by the insurance company providing the annuity.

How can a financial professional help with my retirement income?

You could try the do-it-yourself approach, creating and implementing your own retirement income strategy. However, with your lifestyle, nest egg and financial well-being at stake, is that something you should risk doing without the advice of a professional?

As a result, an entire professional discipline has emerged around the very topic of retirement income planning.

Transitioning from the accumulation phase (where you’re working to grow your retirement nest egg) to the distribution phase (where you’re converting the assets you’ve accumulated into income for retirement) is no easy task. As a result, an entire professional discipline has emerged around the very topic of retirement income planning.

For many people, the chances of getting it wrong — of running short of money prematurely, of needlessly incurring taxes on retirement assets, of lacking cash to cover unexpected expenses — are great. For a professional perspective, you may want turn to a retirement income specialist who has the specific expertise and know-how to help you create a strategy that protects your income — someone who’s as concerned about your future as you are.

*Not affiliated with nor endorsed by any government agency, including the Social Security Administration.

**Guarantees backed by the financial strength and claims-paying ability of the issuing insurer.

***Annuity guarantees rely on the financial strength and claims-paying ability of the insurance company that issues the contract. Lifetime income may be a benefit of the base policy, or a rider may be available for purchase that provides that benefit, as well as other benefits such as increasing income.

Not all RHQ advisors are licensed to sell both insurance and securities. If meeting with a dually licensed advisor is important to you make sure you indicate that to your RHQ representative.

1TIAA CREF Financial Services. Feb. 26, 2015. “TIAA-CREF Survey: Increasing Number of Americans Unfamiliar With the Investment Options in Their Retirement Plan.” tiaa-cref.org. Accessed Feb. 2, 2016.

2The National Institute on Retirement Security. “Retirement Security 2015: Roadmap for Policy Makers – Americans’ Views of the Retirement Crisis.” March 2015. nirsonline.org.

3Investment News and the American College. “Retirement Income Professional Designation.” investmentnews.com. Accessed Feb 2, 2016.

4TIAA-CREF Financial Services. “TIAA-CREF Lifetime Income Survey Executive Summary. Feb. 3, 2015.” tiaa-cref.org/. Accessed Feb. 2, 2016.

If you are unable to access the article(s) referenced above, please call 800.848.8768 to request a copy.

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