Retirement Income "Shock Absorbers"
You’re trying to stream your favorite show, but there's the constant drumbeat of bad economic news.
“A recession is coming.”
“The markets dropped.”
“Inflation is the highest it’s ever been.”
You're so close to retirement you can taste it.
Golfing, taking that cruise, spending more time with the grandkids. The excitement is like a ride in a convertible on a warm sunny day, with the feeling that you could go anywhere.
Until your retirement daydream grinds to a screeching halt as you face the reality of uncomfortable changes to how you receive your income when you’re no longer working.
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 over you. 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?
As you know, inflation can eat up a lot of purchasing power. The U.S. saw a record high for inflation in 2021, with an average rate of 4.7%.1 It’s not clear when it will return to pre-pandemic levels. Or IF it will at all. Your retirement income needs to keep pace with prices rising throughout your senior years.
You’re probably used to receiving a consistent paycheck on a regular basis. It helps relieve the anxiety of paying bills when the market’s rocky. But you know that once you stop working and retire that you’ll lose your regular income stream. Times like these may make you even more concerned about whether you’ll be able to make your money last as long as it needs to.
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, just as the smartest investors do.
This guide is designed for workers just like you who want a reliable stream of monthly income that helps cushion the blow when markets are dropping, so that you can retire confidently.
You might be asking yourself questions such as:
What happens to my retirement income when the stock market drops?
How will I maintain my standard of living in my senior years when the economy struggles?
Is there anything I can do to help stabilize my cash flow, no matter what’s happening to my savings and investments?
How do I handle the uncertain future without giving up too much in the here-and-now?
Will my spouse be able to maintain the same standard of living when I’m gone?
If any of these strike a chord with you, keep reading…
Retirement Income Shock Absorber #1:
Shore Up Your Social Security:
Social Security is a key component of retirement for most Americans – close to 9 out of 10 people age 65 and older receive benefits.2 Unfortunately, the information in popular culture is often misinformed, misleading, or downright wrong.
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 take into account 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:
Do I know the “break-even point” where delaying my claim to obtain a higher payment gives me more money than claiming earlier and being paid longer?
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:
Though many Americans no longer have access to a pension income from an employer, some still do. 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
Many pensions are calculated as a formula based on income and employment period with the company. You may want to plan to stay an additional year or two and take a promotion with more income to recalculate the formula that your company uses.
When it comes to the payout, you also likely 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
You’ve saved money for retirement, but the current market has you worried about what will happen when you retire. Will you be able to pay your monthly bills and maintain your standard of living? It may not be clear how you turn your assets into cash flow that covers your wants and needs in retirement.
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, these events don’t have to keep you up at night worrying that you’ll have to pick up work as a greeter in a big-box store when you had been planning to enjoy your retired life.
You can create reliable streams of income that are independent of what’s happening in the markets.
That way you don’t have to worry about paying your bills, or whether you’ll have to sell assets when they’re low in order to cover your expenses.
It’s OK if you don’t have your retirement planned out yet, or you’re still unsure how you’re going to create the cash flow. You now know it’s possible, and you can copy what other smart investors do to shore up their retirement income. All you need is a little help to create a plan that works for you and your family.
However, 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.
Smart investors use financial professionals to help them create a plan. You can take advantage of this strategy too. We understand the factors that go into retirement planning and customizing solutions for your unique circumstances. Our professionals have the knowledge and the experience in retirement income streams to help you make critical decisions.
Call us today to schedule your free Retirement Income Assessment.
You’ve already taken the first smart step by reading this guide. 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.
Paavan Kotini, CEO & Principal Advisor
Kotini & Kotini