By Dan Miller, CFP®
Trying to enjoy the little things in life is a little harder when there seems to be a constant drumbeat of bad economic news.
“A recession is coming.” “The markets dropped.” “Inflation is the highest it’s ever been.”
You’re on the brink of retirement, but the threats of a recession and bear markets, not to mention inflation, seem like they’re constantly looming. Will your savings be able to withstand the shock of a sudden downturn in the economy, and will you be able to rely on a steady income stream throughout your retirement?
You’re probably used to receiving a consistent paycheck on a regular basis. It helps relieve the anxiety of paying bills when the market is rocky. But once you stop working and retire, you’ll lose your regular income stream.
But what if you could create a reliable monthly cash flow even when you’re no longer working? One that gives you the confidence of knowing you’ll be able to pay your bills even if the market’s crashing. A recession or bear market at the wrong time can be a shock to your retirement income. But there are ways you can add some “shock absorbers” to your retirement plan.
This blog is for workers who want a reliable stream of monthly income that can help cushion the blow when markets are dropping, so that you can retire confidently.
Retirement Income Shock Absorber #1: Social Security
Social Security is a key component of retirement for most Americans – close to 9 out of 10 people ages 65 and older receive benefits.2
You may not even be sure how Social Security works. If you look on your statement, you’ll see your Primary Insurance Amount (PIA) that will be paid out monthly once you reach your full retirement age (FRA).
For most people reading this, FRA is age 67. You can start claiming at age 62, but your payment is permanently reduced for each month you take before your FRA. On the other hand, if you delay claiming past your FRA, you get a permanent raise in your benefits each month you delay up to age 70. If you live a long time, you may be better off delaying until 70.
If you’re married, you also need to consider spousal benefits. When there’s a big difference in the PIA between two earners, the higher earner should almost always delay until age 70. The lower earner may be able to claim earlier than their FRA so that there’s some income coming in, depending on the circumstances.
Critical questions to ask:
- When do I claim my Social Security benefits to get the most out of it?
- Is it clear how my benefits, my spouse's benefits, and potentially an ex-spouse’s benefits can be used to maximize our lifetime payout?
- How should my spouse and I coordinate filing our claims?
- Have I discussed my Social Security claiming strategy with a financial professional?
Retirement Income Shock Absorber #2: Maximize Your Pension Benefits
If you’re one of the lucky 25% of workers with access to a defined benefit plan, certain strategies can help you get even more from your pension.3
When it comes to the payout, you are also likely to have some choices to make. The amount needs to cover your entire lifetime, not just the next 10 years or so. Some companies adjust the pension for inflation, but not all do. The largest amount may seem attractive, but does it endanger your spouse’s finances if they outlive you?
Critical questions to ask:
- How does the pension affect my Social Security payment (or my spouse’s)?
- Am I clear on whether the pension will adjust for inflation during my lifetime?
- Is there any way I can increase how much the formula will give me?
- Is the company providing the pension projected to be in good financial health for the next few decades?
- Have I discussed my pension plan with a financial professional?
Retirement Income Shock Absorber #3: Turn On Your Own Income Stream
While you’re working, you’re building your wealth. But when you retire, you begin distributing money instead of accumulating it. There are a variety of methods for turning on a spigot that you can rely on no matter what the stock market is doing, and one of these is to purchase an annuity.
While you don’t want to tie up all your assets, an annuity can provide a reliable stream of income throughout retirement. No matter what the markets are doing – crashing and burning, going sideways, or spinning in circles – an annuity will continue to pay out your monthly amount.
Annuities are not right for everyone. However, they’ve come a long way from the ones your parents might have had. Become familiar with the specifics of your annuity, such as building your understanding of the surrender period and what you need to do to make sure that you receive what you expect every month.
Critical questions to ask:
- Do I understand how my portfolio of assets will generate regular cash flow?
- What happens to my retirement income when markets get rough?
- Are there other techniques for building a steady income stream that I should consider?
- Have I discussed my cash flow plans in retirement with a financial professional?
Use Planned Cash Flow to Absorb Bad Financial Shocks
Anything can happen after you retire – you could see more high inflation, bear markets, recessions, or even pandemics. When markets get rough and you start seeing the value of your assets drop sharply, it can be scary. Many Americans feel anxiety when there’s bad economic news on the horizon…. Or directly in our faces.
However, you can create reliable streams of income that are independent of what is happening in the market. All you need is a little help to create a plan that works for you and your family.
It is critical that you start planning now for your future. The sooner you take action, the sooner you can put in place techniques that will help you make your savings last and have some cash flow in retirement.
You’ve already taken the first smart step by reading this blog. Our team can help you determine your next steps and how to take action. So, you can feel secure knowing your plan will help you even when markets are down. Contact us for your complimentary, personalized Retirement Income Assessment now.
Guarantees are backed by the financial strength and claims-paying ability of the life insurance company.
Annuities are best suited for long-term investors. Some features mentioned may be available only by the purchase of a rider, an optional addition to an annuity or life insurance policy that is available for an additional fee. Withdrawals prior to age 59 1/2 may be subject to an additional 10% tax penalty. Surrender charges may apply.
Dan Miller, Kaleb Robuck, and Marcus Taylor are investment adviser representatives of, and securities and advisory services are offered through, USA Financial Securities Corp. (Member FINRA/SIPC). USA Financial Securities is a registered investment adviser located at 6020 E Fulton St., Ada, MI 49301. Milestone Financial Group is not affiliated with USA Financial Securities