5 Tips for Creating Retirement Income Streams

Americans are living longer than ever. That’s mostly great news for older adults.  You now have more opportunities to enjoy family and enrich your community. However, we are all concerned about outliving our money.  Having retirement income streams to meet expenses for as long as you live is a significant concern. Retirement income streams: Not as easy as turning on the faucet. Not as hard as you might imagine. Most articles on retirement income streams give investment advice.  And, there are various investment strategies that can offer you great income… if you are fairly wealthy.What about the rest of us? Nearly half (46%) of Americans are “very” or “somewhat” worried about outliving their savings, including 50% of non-retirees and 36% of retirees, according to a recent Transamerica Institute study. And, unfortunately, there is good reason for concern. Only 65% of workers have any savings for retirement, a number that fell below the 75% in 2009, according to a recent survey by Employee Benefit Research Institute (EBRI) and Greenwald and Associates.  “We all know people living to 100 and beyond,” said Cindy Hounsell, president of WISER, the Women’s Institute for a Secure Retirement, during the recent White House Conference on Aging. “And finding a financial solution for a 20-to 30-year time frame is not going to take care of itself.” If you are worried about retirement income and do not have millions in the bank, you will be better off finding stable retirement income from other sources besides savings.  Here are 5 strategies to help you get in front of your fears about finances to ensure you have a substantial revenue stream as you age.

1. Consider Work — Working Longer or a Retirement Job — Even Part Time

Work can be a magic solution for your retirement.  Work enables you to delay tapping into savings and sometimes work can mean that you even add to savings.  Plus, the right work can be fun and rewarding. And work does not mean nose to the grindstone.  You may be able to find work that you truly enjoy.  Explore ideas for retirement work here: “The Best Retirement Jobs.” Or, if you are unsure with whether work can truly have an impact on your retirement, try using the Boldin Retirement Calculator.  When you get to the “Your Plan” section of the tool, you can experiment with different work time frames and income levels and immediately see the impact the employment has on your retirement finances.

2. Plan Early, Save Often

“I never met a retiree who thought they saved too much for retirement,” Hounsell said. “Start early and take advantage of every opportunity that comes your way.” Much like how intentions to start a new diet or workout program fall to the wayside, so too do workers’ plans to start saving for retirement. In a survey of 100 American workers, two out of three say they are not saving enough by their own judgement, said David Laibson, the Robert I. Goldman Professor of Economics at Harvard University. Yet, only three out of the 24 who said they would raise their savings rate within a two month period following being surveyed actually did so. “Actions don’t always match intentions,” Laibson said. “We mean to save, we mean to exercise, we mean to eat better — but psychological forces get in the way.” Starting a savings plan as soon as possible is key, experts agreed. In addition, “pay close attention to what savings employment-based plans you have at your job, and understand how that system works,” Hounsell advised.

3. Delay Social Security

“One of the most important things you can do is become familiar with the Social Security system,” Hounsell said, adding that this advice is especially pertinent to women. Women tend to claim Social Security early when it would better serve them to wait, data show. Social Security can be your biggest and most reliable retirement income stream. Social Security can represent up to 40% of the total income Americans receive throughout retirement. However, only 15% of women wait until their full retirement age and only 3% take it late, according to a survey by the Nationwide Retirement Institute SM. If you have reached normal retirement age, which is 66 for people who were born between 1943 and 1959, you can access 100% of your benefits. For each year after that, up to age 70, your benefits increase 8%, meaning you can access 32% more at age 70 than at age 66. If those benefits are tapped at younger than normal retirement age, they will be reduced based on the number of months you receive benefits before you reach your full retirement age. For example, if your full retirement age is 66, the reduction of your benefits at age 62 is 25%; at age 63, it is about 20%; at age 64, it is about 13.3%; and at age 65, it is about 6.7%, according to data from the Social Security Administration. “Women earn less over their lifetime [than men] and have less income in retirement,” Hounsell said, adding that women should understand Social Security so they can make it work to their advantage. In addition, “many couples fail to plan for the death of a spouse, and that can mean a steep loss of income, which is a real problem for widows or widowers,” she said.

4. Consider Annuities as a Retirement Income Stream

An annuity, or insurance product that pays out income, allows you to make an investment in the annuity and then makes payments to you — giving you a dependable income stream during retirement. “Many people are looking at annuities as a way to have guaranteed income for life,” Hounsell said. Recently, the U.S. Department of the Treasury and the IRS changed their guidance for the use of annuities in 401(k) plans, increasing access for those planning for retirement. Until now, most employers offering 401(k) plans typically offer target date funds as a default investment for participants who do not affirmatively elect a different investment. The guidance clarifies for plan sponsors how they can include deferred income annuities in target-date funds. Target date funds get their name from the fact that their allocation of investments shifts gradually from equities to fixed income as participants approach an intended target retirement year. The new guidance provides plan sponsors an additional option to make it easier for employees to consider using lifetime income. Instead of having to devote all of their account balance to annuities, employees use a portion of their savings to purchase guaranteed income for life while retaining other savings in other investments. In addition, a target date fund may include annuities allowing payments, beginning either immediately after retirement or at a later time, as part of its fixed income investments, even if the funds containing the annuities are limited to employees over a specified age.

5. Have a Retirement Plan

Ultimately, meeting with a financial planner is the first step to making sure you are making the best decisions related to your retirement.  Or, you can use a retirement calculator. The best retirement calculator can help you answer many questions, including:

• Do you need a financial planner?
• How much income do you need for retirement?
• How much do you need to save?
• Will you run out of money?
• When should you start Social Security?
• Is an annuity right for you?
• And much more…