take control in retirement

There was a time, not so long ago, when retirees could expect to live comfortably on their previous employer’s defined-benefit pension plan. With their monthly payments determined by how long they worked for their employer, many retirees felt that they could afford to put their retirement on autopilot. And, to a certain extent, they were right… as long as their employer stayed around!

What a difference a few decades make. In 2019, for the first time, defined-contribution plans (primarily 401k and IRA accounts) represented more than 50% of global retirement savings. And, this trend is accelerating. This means that the world has a simple message for retirees:

“Sorry, retirees, you’re on your own!”

– The World

It may seem harsh to say this, but, governments and companies all over the world simply don’t see it as their responsibility to ensure that we can make ends meet in retirement. And, the truth is… even if they did care, they can’t afford to help. There are simply too many of us.

Even programs like Social Security and its counterparts in other countries aren’t expected to last our generation through retirement. Retirees who expect to receive their full Social Security benefits for the next 20-30 years are simply deluding themselves.  

The writing is on the wall. We need to accept the fact that we are on our own and develop a plan to secure (and grow) our income in retirement.

Have We Been Tracking the Wrong Retirement “Number” Our Entire Lives?

“How much have you saved for retirement?” It’s a question that we hear, in one form or another, 10 times a day on TV and the radio. We have become so trained to focus on how much we have in our retirement accounts that many of us have never asked the more important question: “How much monthly income have you secured for retirement?”

Why is this an important question? For starters, you can’t live on your savings. You can only live on the income that they generate. As a result, fluctuations in interest rates can have a massive impact on your retirement lifestyle.

But, that’s nothing new. People have been talking about the impact of today’s low interest rate environment on retirees for some time.

What is perhaps more important is the fact that thinking in terms of income and not savings forces us to think like mature small business owners, not helpless “senior citizen” victims.

When I talk with large groups of Boomers, I’m always amazed by how few of us have built retirement income plans. We may have a rough idea of how much “safe” income we can get if we put our retirement savings into bonds (which are not always safe, by the way!) But, we probably haven’t thought about how we can generate money from renting out our apartment, working part-time as a freelancer or by purchasing a fixed income annuity.

Let’s go through a few examples…

How Much “Savings” is $500 in Rental Income Worth?

$500 in additional monthly income doesn’t sound like much, until you find yourself living on $3,000 in retirement! And, can you guess how much additional money you would need to save in order to generate extra $500 in passive monthly income? $150,000! That’s almost as much as the average Baby Boomer has in total.

Here are just a few ways that you could make extra $500 (or more!) a month just by renting out your most valuable assets:

You Don’t Have to Work Full Time to Live a Full Life After Retirement

Occasionally, I meet someone who loves their day job so much that they never want to retire, but, I think that it’s safe to say that the great majority of us are ready to try something new.

In other words, retiring from your day job doesn’t mean that you need to retire from the world. My own circle of friends has a semi-retired math tutor for high-school kids, two freelance writers, a soap maker, jewelry maker, marketing consultant and a professional gardener.

My own company, Sixty and Me, works with four freelancer writers who are in their 60s or older. And, you know what, they work just as hard as any of the younger freelancers who write for us.

Do you need to work full-time? Of course not! As I said before, making extra $500 a month is like having an extra $150,000 in your retirement account. And, if you choose work that you actually enjoy, it’s a win-win!

Can You Create Your Own Pension?

Many people, including myself, arrived at retirement without a pension of any kind. Some, like me, simply worked for employers that didn’t offer defined-benefit pension plans. Others were stay at home moms, who prioritized their families over their personal fortunes.

The good news is that it may be possible to create your own pension, using an income annuity… and your monthly payment could be higher than you think.

To be 100% clear, I’m not a financial professional and I am not saying this financial vehicle is for you. But, I do hope that this gives you something to discuss with your own financial advisor.

Income annuities have been around for a really long time… over 100 years! With an income annuity, you hand over a chunk of your savings to an insurance company who, in exchange, gives you guaranteed monthly payments for life. These payments are often significantly higher than you could have received by investing your money.

The biggest criticism of income annuities is that, if you die early, you will “lose” the money that you gave to the insurance company. But, here’s the thing… you can’t take your money with you and, while you may care about leaving something for your kids and grandkids, leaving a financial legacy isn’t worth living in poverty in your most vulnerable years.

In a way, the “risk” that you take with an income annuity is similar to the risk that you take with Social Security. You pay a large amount into the program during your lifetime and it is possible that you will die before getting that money back. But, it is also possible that you will live longer than the average person and will make more money than you expected.

Are there more fancy income annuities that give you the option of leaving something for your partner or other family members? Absolutely! But, the more you leave, the lower your monthly payments may be. So, definitely talk with your financial advisor to make sure that you get the right product for you.

Income is King in Retirement

The bottom line here is that…

The number that we should care most about in retirement is the amount of money that arrives in our account each month.

Sitting on a big fat golden nest egg feels great… but, it may not guarantee that you are able to live comfortably forever.

So, take control and start to see your family as a small business with expenses and income. And, talk to a financial advisor (preferably a Fiduciary Advisor) to see if there are any financial vehicles, like income annuities, that might be appropriate for your situation.

How do you plan on generating extra income in retirement? Do you think that, as a society, we tend to be too focused on savings and not on income? Why or why not?