Opportunity #1: Income Planning

In our last segment, we talked about the “doom and gloom” on the horizon, but ended on a positive note, as we are sharing three opportunities that you can take advantage of to potentially turn your fate around.

Around 25 years ago, financial advisors were taught that a proper retirement plan utilized the “three-legged stool” approach. The first leg of the stool was Social Security: a guaranteed, lifelong income. The second leg was a pension plan: another guaranteed, lifelong income that can be applied to a spouse after you pass, depending on the plan you select. The third leg was personal savings: a 401K, 403B, 457B, an IRA, or money you’ve independently set aside.

The intention was for all three legs of the stool to work together. The guaranteed income from Social Security and your pension plan would cover most of your everyday expenses and lifestyle, while the personal savings would be used for luxuries like travel, a new car, or a golf club membership.

Over the years, a couple of these legs have become shaky. Much of the media has convinced us that Social Security is running out of money, causing worry among those planning for retirement. This isn’t going to happen; if Social Security ran out of money, politicians would be voted out of office (and they know it.) They may change how Social Security works for someone who is 28 or 29, but if you’re over the age of 50, don’t let unqualified sources scare you into believing you’re in danger; you have nothing to worry about.

The pension system appears to be the least stable leg on the stool. If you work for the state or school system, you may still have a pension plan, but corporate America has been phasing them out due to high liability. Instead, they offer a 401K plan (no longer a guaranteed income) and match your contributions.

Many people retiring today have Social Security, personal savings, and no pension, straying from the traditional three-legged stool template. Social Security alone often will not cover a retiree’s base lifestyle and expenses, requiring us to seek out new opportunities.

Due to the Federal Reserve increasing interest rates, personal pension plans, which were popular 10 years ago, have made a comeback. You can give a portion of your 401K to your insurance company, which then pays you and your spouse an income for as long as you both live. Like a standard pension, the longer you wait to begin that income, the larger that income will become. If you both pass before you receive the amount in full, the remainder is left to your children.

When personal pension plans were popular 10 years ago, for every $100,000, you could expect around 6-7% interest depending on how long you waited. These plans lost popularity when interest rates dropped and suddenly, retirees weren’t receiving a satisfactory percentage.

Today, personal pension plans are again becoming a valuable tool. I worked with a couple in their mid-60s who retired with $1,000,000 and were receiving $5,000 between the two of them from Social Security, as they were both still working. Their goal was to increase that amount to $8,000 to accommodate their lifestyle more appropriately. Our solution was to place $600,000 of the $1,000,000 into a personal pension plan, generating the additional $3,000 they needed, guaranteed for the remainder of their lives. This still left them with $400,000 in “fun money” and ensured that any remaining income they didn’t receive before they passed would go to their children.

We want you to be comfortable in retirement and not consumed with stock market performance and whether you will run out of money someday. Studies show that people are happier and less stressed when they have a guaranteed income, and we would love to consult with you and send you on the right path to retirement.






















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