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Turning Retirement Savings into Retirement Income

#retirement #saving #income

When it comes to preparing for retirement, the Key message: save, save. But once you finally do stop working you will want to spend” — Paul Ebeling

The Big Qs: Will I have enough income for retirement?  Is enough of it guaranteed for life so I do not need to worry about running out of money if I live to a ripe old age?

Social Security payments equal only about 40% of the average wage earner’s pre-retirement income. If like most people, you do not have a traditional employer-provided pension, you will have to make up the rest. A rule of thumb is that you will need 80% of your pre-retirement income.

Let’s say you have done the right things: taken advantage of your employer-sponsored plan and have put away money in your 401(k), 457 or 403(b) plan and invested wisely, and perhaps have also invested in an IRA and perhaps a Roth IRA.

Now the Big Q is: How can I best turn some of your savings into guaranteed income? Many economists recommend annuitizing a significant portion of your retirement savings.

Begin by annuitizing enough of your assets so that you can provide for 100% of your minimum acceptable level of retirement income,” says a 2007 study, “Investing your Lump Sum at Retirement,” from Wharton Financial Institutions Center. “Annuitization provides the only viable way to achieve this security without spending a lot more money.”

An annuity is based on the same actuarial math as a pension, except the insurer does consider gender. That can disadvantage women because they are expected to live longer but it can advantage men.

If you take this path, you must roll over the pension lump sum into an annuity IRA to avoid a big tax bill on the distribution.

With an annuity IRA, you control when you begin receiving retirement income. You can start taking penalty-free payments as early as 59½ or you can delay them until the year you turn 72 anni when you must start required minimum distributions (RMDs).

Most pension plans start paying out when you turn 65 anni, if you are retired. Getting 7 more yrs of tax deferral can help your savings grow significantly if you can afford to wait.

While most people choose a lifetime annuity, you can choose a set period, such as 15 yrs, and receive more annual income. This can be a good choice for people who have other income sources kicking in at a future date or who do not expect to live to an advanced age.

Most pension plans are sound, but some are underfunded, and are protected by the Pension Benefit Guaranty Corporation, but only up to certain limits. If there is any reason to think your pension plan is underfunded, you can reduce your risk by opting out of it.

A lump-sum payout transfers the risks associated with investment performance and longevity from the pension plan sponsor to the participant. But then you can transfer that risk to an annuity company via an IRA annuity.

Annuity insurers file regular financial reports with state insurance departments that strictly regulate them.

Plus, state guaranty associations insure annuities up to certain limits in the unlikely event of the insurer failing. If you put a lot of money in annuities, you can spread it out among more than 1 insurer so you willhave complete protection from the guaranty association.

There are firms that help people looking for their best options in principal-protected annuities. Do your homework.

Have a prosperous day, Keep the Faith!

Paul Ebeling
Paul A. Ebeling, a polymath, excels, in diverse fields of knowledge Including Pattern Recognition Analysis in Equities, Commodities and Foreign Exchange, and he is the author of "The Red Roadmaster's Technical Report on the US Major Market Indices, a highly regarded, weekly financial market commentary. He is a philosopher, issuing insights on a wide range of subjects to over a million cohorts. An international audience of opinion makers, business leaders, and global organizations recognize Ebeling as an expert.   

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