Do I have Enough to Retire? – Guaranteed against Inflation

I’m excited to continue this series of articles on why a written income plan is a core component of the Lord & Richards Roadmap?. In the previous two articles, I went over some important issues to address, like testing your current portfolio to determine its probability of never running out of money before you run out of life. We do more than a list you may get from a typical brokerage house that includes only static rates of return, inflation, and taxation. We conduct thousands of simulations to test all possible scenarios and develop a likelihood of success that is as close to 100% as possible.

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We also went over what many people use for income in their portfolios. We discussed non-guaranteed sources, such as rent, corporate pensions, dividends and distributions from REITs, and even withdrawals from your portfolio. For those of you looking for routes that are a bit safer and more secure, you have some options.

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As you consider different income sources, I recommend using guaranteed income sources to cover essential living expenses like your rent or mortgage, food, and whatever else you can’t do without. Guessing your way through retirement is not the way to go. Most of us have access to Social Security, which is a significant help. If you’ve worked a full career, you could have $2,000-$4,000 a month or more of guaranteed income as a couple with cost-of-living adjustments.

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This is the foundational piece of most retirements. Now, your budget might be higher than that, especially if you live in an area with a high cost of living. You may need thousands of dollars more, but Social Security forms a nice foundation. Some people who receive only Social Security refer to themselves as living on a fixed income. We don’t want that experience for you as a client of Lord & Richards.

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Where else can you go? There is another blessed group who, like my dad, served our country faithfully for decades and retired with a full government pension. Government pensions are backed by the full faith and credit of the US government.

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There are two key pieces if you earn a government pension.? If you’re married, the easiest choice is to take a joint payout. Not everyone needs the same solution, but generally, joint payouts allow your spouse to continue to receive an income if you pass away. If you pass away before your spouse, a portion of your Social Security will be gone. If you’re both receiving Social Security, the lesser of the two checks will end, and the larger of the two will continue.

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With a government pension, if you selected a single life and you passed away, your spouse would lose part of your Social Security and the entire government pension. You want to go with a 100% joint payout or, at the very least, back up a single life payout with life insurance. We can help you run the numbers to see what makes the most economic sense for you.

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Another guaranteed income source would be annuities. Annuities have existed in one form or another for two millennia since the Roman Empire. They’ve been regulated here in the United States for over a century. The good news is no one has ever lost their money in the right kind of annuity. An immediate annuity is one type that guarantees income, but you lose all control of the money you put in. It’s a great option if you have no reason to be concerned about leaving money behind. Most of my clients prefer not to lose all control over their money. If something changed or they passed away, they want to leave money behind.

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A second kind of annuity is a “variable annuity,” which I’m not super excited about. It’s not inherently bad but tends to be less than ideal for most people’s situations. For example, you can lose your principal with a variable annuity, just like in a market investment. While variable annuities might provide a guaranteed income, they often have high fees, which again erodes your principal.

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A third type of annuity is the “fixed annuity or fixed-indexed annuity.” These have existed for a long time and will guarantee that you don’t lose your principal to market fluctuations. They often come with very low or no fees, and they’re often indexed to the market, so you can grow potentially higher than just a fixed rate of return. Fixed annuities provide guaranteed income without forcing you to give up control of your principal. While the income does come out of your principal, it’s guaranteed for life. Even if the balance in the account goes down to zero, that income will last for the rest of your life.

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As I’ve mentioned, you should withdraw only 2%-3% per year if you’re relying on your portfolio and don’t want to run out of money before you run out of life. This principle applies to stocks, bonds, and risk investments. The good news is that the safe withdrawal rate from a guaranteed, fixed-type annuity with a lifetime income is 4%-7%. That’s more than twice the rate you can take from a non-guaranteed source. If you’d like to learn more about this, I’d love to talk to you about how you can retire financially independent with your Lord & Richards Roadmap?. It starts with a simple call.

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Investment Advisory Services offered through Lord and Richards Wealth Management, LLC, a Registered Investment Adviser.

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