Retirement Income & What Matters to Most
When speaking to near retirees, for pre-retirement counseling, a recurring theme is when I hit this balance in my TSP, or 401K, or retirement accounts, than I can retire. I wanted to make it to 1 million, is a very common statement, before I retired. Ah Wall Street, they have been so effective in training us to think that returns are so very important. I hit that magic number in my retirement account, and I can pull the string, and all will be right as rain. The kids will be out of college, and the mortgage paid off (or paid down in Cali), and life will be a breeze.
Or will it be … ?
When speaking through well over the last 15 years (since the Financial Crisis when I started in the financial arena) to thousands of federal employees (and private industry) there are some major points of concern that continue to surface and be expressed to me, from some intelligent folks I’d say:
- Will my/our money last a lifetime?
- Will a stock market loss ruin my retirement income?
- Will Social Security be (underfunded) in my near future retirement (this one requires a little more explaining) in the same manor as today?
Will My Money Last a Lifetime?
Boy oh boy is this not the million dollar question. So many factors to consider, and the other concerns above, like stock market losses, factor into this equation. I guess what merits consideration is do you have a written retirement income plan. Most do not, as estimates range from about 20% or less, leaving 80% of retirees with nothing on paper (or in software)! In my experience this figure seems generous for the families I visit with. You have a pretty good idea of your expenses and pension, but are just done after so many years of working, and government service, and just want out. So many tell me “Charles, I am done!”. I hear this so often it is no longer surprising.
A better question, and a more thorough planning question, is will my income survive? Survive thru thick and thin, the ups and downs of the market, future health care expenses, possible Social Security reductions, long term care expenses, and whatever else is thrown at me. And at what age will it survive, since some are convinced 83 is way more than enough, and others are expecting to live to 100. It is a broad range question, but one that should be addressed before retiring, testing various scenarios and possible changes. For most you’ll need access to financial planning software to see the multiple outcomes from a changing landscape. This concern is a real concern, and one that intelligent people ask often.
Will a Stock Market Loss Ruin My Retirement Income?
I don’t know, will it? There are so many factors at play here. But I can tell you one thing, if you’re expecting to lean on your retirement savings for a large portion of the monthly income, than riding the stock market up and down along the way could be more excitement than most retirees want, or expect. Do you want to adjust your lifestyle every time the stock market losses? You don’t want to cancel your trip to Europe or that cruise because your retirement accounts took a massive dive. Nor do you want to limit the amount of eating out you do, or National Parks you visit, because you were overinvested in the stock market.
Life is about moderation, and investing is no different, particularly for retirees needing income. Income generating assets, as a rule of thumb, should be separated from growth aka stock assets, in retirement. So when you do inevitably have a stock market loss, there is no worry. You have established the monthly income from money that doesn’t pitch so high and low as that. Limiting the fluctuations of your monthly income is essential.
Look, did your paycheck fluctuate while working, according to the performance of your TSP or 401K every two weeks? No, of course it didn’t. So should your monthly retirement pay fluctuate according to the performance of your portfolio? Again of course not. Separate the funds you all.
Will Social Security Be Properly Funded?
There is a lot of chatter lately about Social Securities future paying abilities. I wonder why .. ?
Maybe it’s the Social Security statements themselves. Why try to reword what is already stated by the Administration themselves. Keep in mind this is good news folks, not bad news, in a decade or less, copy and paste:
Social Security projected to cut benefits in 2035 barring a fix
The timeline to replenish Social Security is being extended. The federal retirement program said Monday it may not need to cut benefits until 2035, one year later than previously forecast, because of stronger performance by the U.S.
The new projection, from the Social Security Board of Trustees’ annual report, amounts to “good news” for the program’s 70 million beneficiaries, said Martin O’Malley, Commissioner of Social Security, in a statement. Even so, he urged Congress to take steps to shore up the program to ensure it can pay full benefits “into the foreseeable future.”
Social Security relies on its trust funds to provide monthly checks to beneficiaries, with the funds primarily financed through the payroll taxes that workers and businesses provide with each paycheck. But the funds’ reserves are drawing down because spending is outpacing income, partly due to the wave of baby boomer retirements and an aging U.S. population.
Experts underscore that if the trust funds are depleted, benefits won’t suddenly disappear. Instead, Social Security beneficiaries will face a cut to their monthly checks, with the agency on Monday projecting that recipients would lose 17% of their current benefits.
Now back to my thoughts. This is way better than the 23% slash they were just formerly speaking of several months ago. It is a real concern, and your planning would likely want to consider falling payments in the next decade, and see if your plan survives.
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Happy Retirement