Retirement planning can be overwhelming, but what if you could uncover strategies to secure a steady income and live stress-free?
In this episode, April Schoen dives deep into various strategies to maximize your retirement income and ensure financial stability.
You’ll discover…
The key factors influencing the timing and strategy of claiming Social Security benefits.
Different pension options and the impact of your choices on long-term financial health.
Strategies to transform your retirement investments into a reliable income stream.
The pros and cons of annuities and how they could fit into your financial plan.
The significance of asset allocation and diversification for risk management and stable returns.
April Schoen: Hello. I'm April Schoen, a financial advisor with over a decade of working with clients and helping them not just get to retirement but through retirement. And over the years, I've helped hundreds and hundreds of our clients achieve their financial goals, making sure that they can enjoy their retirement with confidence. Welcome to our channel, and today's video episode is really the second installment of our five-part series we're doing on how to get ready for retirement for people over the age of 50.
So if you haven't watched part one on creating your retirement framework, I suggest you hit pause, go back watch that first episode on creating your retirement framework, and then come back to this one. Because that first one's going to really be all about setting up goals for retirement, starting to really take a look at assets and liabilities, and what are all those things that you need to do to start getting prepared for retirement.
And this is part two. We're going to talk about how do you maximize your income in retirement. I'm sure this will be no surprise to you, but having a steady stream of income in retirement makes people feel more comfortable, right? Research has shown that retirees with higher more secure income sources are not just happier, but they tend to live longer and have less stress.
Who wants to sign up for that? Who wants to be happier, live longer, and have less stress? There have been studies by the LIMRA Secure Retirement Institute and the RAND Corporation, and they found that retirees with guaranteed income streams like annuities, Social Security, pensions, they report higher levels of satisfaction in retirement and lower rates of depression. So again, these are all things that we want to have in our world.
And today we're going to talk about various strategies to help you have that. We're going to talk about Social Security timing and strategies. We're going to talk about pension options. We're going to talk about how do you create an income stream from your investments in your retirement accounts. Excited you're here, let's dive in.
So on today's agenda, we're going to talk about Social Security timing and strategies. When you go to take Social Security is going to be the biggest decision you're gonna make when it comes to your retirement. If you have a pension, you're gonna have lots of decisions, lots of choices to make. We’re gonna talk about all these choices, and how do you know that you're making the right one for you and for your family.
And then, how do we create an income stream from our investments? Congratulations. Congratulations, you've done a great job. You've worked hard, you saved money, you have money in your retirement accounts and your investment accounts, and you get to retirement, but now what? What is that income stream really going to look like? And how do you go about that? We're going to talk about some key strategies on how to do those today.
These three topics are by far the most common questions that we get from clients about retirement. When to take Social Security, what to do with a pension, and then, how do they structure getting an income from their retirement accounts and their investments? Social Security timing and strategies.
Again, this is one of the most important sources for income for many retirees. And depending on when you start taking Social Security, is going to significantly impact your retirement income. So we're going to talk about the pros and cons of taking these benefits early versus delaying them. How do you maximize spousal benefits, survivor benefits, and how do we coordinate that with other assets that you may have?
Now today I'm going to give a high-level overview of Social Security because part three of this series is going to be all about Social Security. So today I'm going to give like high level and then come back for part three so you can learn more. Let's understand the basics of how Social Security works. Social Security benefits are calculated based on your highest 35 years of work history.
If you've ever looked at your Social Security statement, you'll see your earnings history. So if you do not have 35 years of work history, guess what? They add in zeros into the calculation, and that's really going to drive down your average. So pay attention to that. That's one strategy is making sure that you've got at least 35 years of work history. That's going to make a big difference. Now, you have to have at least 40 credits to qualify for Social Security benefits.
What are credits? Basically, you need to have about 10 years of work history because you earn four credits per year. So we need to have 10 years of work history to qualify, actually, it's for both you and your spouse to qualify for both Social Security and Medicare. Now the amount you receive depends on what's called your average index monthly earnings. And again, that comes from that 35 years of work history.
And what's also going to be really important for you to know is when is your full retirement age? Your full retirement age is determined by the year you were born. For most people, it's between ages 66 and 67. Now you can take your benefits early. So if you take your benefits as early as 62 which is the first time, that's the earliest you're able to claim Social Security, your benefit is going to be permanently reduced. Very important to know.
But if you wait past your full retirement age, you can delay taking Social Security all the way to age 70, then your benefit is going to be increased. We're going to talk some more about that. Let's talk about the impact of claiming age. When you take Social Security, that's going to have a big impact on your benefit amount. So when to start claiming benefits? Again, this is going to be one of the biggest decisions that you make.
You can begin taking benefits as early as 62 and you can wait until age 70. Claiming benefits before your full retirement age results in a permanent reduction. Let me give you an example. If your full retirement age is 67 which is what mine is, and that's also for anyone born after 1960. If you start your benefits at 62 your benefits could be reduced by up to 30%. Three zero. That's a big difference.
On the other hand, if you delay taking Social Security, your Social Security benefit is going to increase 8% every year that you're waiting to take Social Security past your full retirement age, until age 70. So this can significantly boost your monthly payments, which is what we're talking about here. Delaying your benefits is going to increase those monthly payments. So when should you take Social Security?
Well, really, you want to take a lot of factors into consideration. You want to think about your health, your financial needs. Are you married? How much life insurance do you have? There are a lot of factors that play into when should you take your Social Security benefits, which we're going to talk a little bit about here today, with survivor and spousal benefits, when we get to that which is coming up next.
Let's talk about these survivor and spousal benefits. Spousal benefits allow a spouse to receive up to 50% of the higher-earning spouse's benefits. Let me just put some numbers on it, because I'm more of a numbers person. I know that probably doesn't surprise you. But let's say that my Social Security benefit was $2000 a month. We're gonna make the math easy here. So $2000 a month. My husband is entitled to receiving Social Security benefits on his own record, or at least $1000 because that's half of mine.
So again, he will receive the higher of the two, but he can receive his benefit on his own record, or he's entitled to receive half of my benefits at my full retirement age. Again, in that analogy, in that example, if my benefit is $2000 he would be able to receive $1000 from the spousal benefit. Then you've got survivor benefits, and this can be up to 100% of the deceased spouse's benefit. So let's use that example again.
My Social Security is $2000, let's say my husband's receiving the spousal benefit of $1000 per month, and I pass away. What happens? Well, now my husband's going to receive the higher of the two benefits. So in that case, he's going to get $2000 per month from Social Security. He doesn't get both, but he's going to receive the higher of the two.
So these survivor benefits, these spousal benefits, can really provide financial support for spouses, for children, and understanding these benefits can really help you maximize the household's total social security income. One of the things that we do for clients is we do Social Security claiming strategies.
So if it's a married couple, if we receive both of your Social Security statements, we can run Social Security claiming strategy reports and show you what if we both take it early? What if you delay to get the maximum income? What if we do a combination of the two? We could actually show you how to maximize those Social Security benefits, and all we need is a copy of each of your Social Security statements in order to put that report together for you.
One of the things we talked about too is coordinating Social Security with other income sources, because this can be really crucial to helping optimize your total strategy. Let's consider how Social Security fits in with pensions, retirement accounts, other investments, and if planning is done properly, this can actually help you minimize taxes and maximize the longevity of your retirement savings.
One option is you may say, hey, I want to go ahead and start my Social Security benefits because I want to allow my investments, my retirement accounts, more time to grow. I want to leave more money on my balance sheet and tap into my Social Security benefits early. Or the opposite may be true. You may say, you know what, I'm actually going to use some of my assets to bridge this gap for retirement, and I'm going to allow my Social Security benefits to grow, especially past that full retirement age, where I'm getting 8% per year.
So when we're working with clients, and we do our retirement rehearsals, we look at both options. What if we take Social Security early, and then what if we also delay into the future? But if we're going to delay Social Security in the future, then how are we going to bridge that gap for income? Are we going to take it from investments or retirement accounts? Are we going to work part-time? How are we going to bridge that gap for income?
Because it's important to create a comprehensive retirement plan that integrates all of your income sources, and not just look at these things in a vacuum. Now let's talk about pension options and decisions. So if you have a pension, this is going to be a significant part of your retirement income, and understanding your pension options making informed decisions is crucial for you.
So we're going to explore these decisions that you have to make, like choosing between a lump sum or monthly payments, and also understanding those survivor benefits. A defined benefit plan, often referred to as a traditional pension plan, promises to pay a specific monthly benefit at retirement. This amount is usually calculated based on a formula that looks at salary history, years of service, the employer bears the investment risk, not the employee, because the employer is the one who's promising to pay a monthly income to the employee for the rest of their life.
Again, employer bears the investment risk, and you're going to have multiple payout options for how you receive your pension, called pension payout options. When we think about payout options on the pension, usually you're going to see a lump sum option as well as some monthly income benefits. The lump sum is going to give you the entire calculated value of your pension upfront.
It's basically like taking your money and running. Thank you very much for my pension, I'm going to take my lump sum and I'm going to go do something else with it. This option is going to give you more flexibility, so you can invest it, you can spend it how you want to. However, this also means now that you, the employee, bears the investment risk, and you have to make sure that it's going to last you throughout your retirement.
Monthly payments, on the other hand, are guaranteed for life. Think of it like an annuity. This can offer you more security, so you don't have to worry about managing the investment or the risk of outliving your money. And when deciding between lump sum or monthly payments, you really want to take into consideration your health, your financial needs, your risk tolerance, the stability of the pension plan. And this is really where a financial advisor can help you make the best choices for your situation.
Now there are usually survivor benefits available under pensions. Defined benefit pension plans again, usually offer some type of survivor benefits, especially for married couples. And so this is going to be on those monthly guaranteed income streams. So when you're choosing payout options, you're going to have multiple choices available to you.
You can do what's called a single life, a joint survivor, a period certain is also an option. And a single life provides, typically the highest amount of income to you, but it dies when you die. So when you pass away, that income is going to stop and there's there's nothing that's going to continue on to a beneficiary. However, if we look at joint and survivor options, yes, the income is going to be lower, but now it's covering two people. It's covering you and your spouse.
This means you get that income for as long as you're living. The day you pass away, that same income continues on to your spouse. So choosing between the survivor benefit really is going to depend on your financial situation, your spouse's needs, other assets that you have, life insurance.
Again, We don't want to make these decisions in a vacuum, and say, you know what option one gives me the highest income, I'm just going to select it. We want to make sure that we're making these decisions based on knowing our options, based on facts, based on looking at all scenarios to know we're making the right decision. Because when we choose these payout options on the pension, guess what, they're irrevocable.
You cannot change your mind. You can go back 10 years later and say, hey, just kidding. Instead of that single-life payout, I now want to do joint and survivor so my spouse is covered. It's irrevocable. So very important that we're making those decisions from the beginning correctly.
Let’s shift gears and talk about how do we create income from investments in retirement accounts? Again, Social Security, pensions, these are really going to provide you with that retirement, we call it a retirement baseline. These are your guaranteed streams of income. And what we want to talk about as well as, okay, great, April, yes, I have Social Security, maybe, or maybe I don't have a pension, but I've got money saved up in my investments, investment accounts, my retirement accounts.
How do we start structuring an income from those? Because when we're saving money, when we're in our working years, are saving money that strategy, that investment strategy, is very different from now that we're retired and we're starting to pull money out of our portfolios. So we're going to cover some different approaches like using dividend-paying stocks, bonds, different types of systematic withdrawals. We're going to talk about the importance of asset allocation and diversification.
And again, today I'm going to give a high-level overview, because later on in our series, we're going to talk more in detail about the investment strategies, but I do want to give you an overview so you can be thinking about these. Let's talk about systematic withdrawals and withdrawal strategies. Systematic withdrawals means that you're regularly withdrawing money from your investment account, your retirement account.
Usually, this is done on a monthly basis, and clients will use this to provide an income for them during retirement. This strategy really helps make sure you've got a steady cash flow while allowing your investments to continue to grow. And there are definitely different strategies when it comes to taking money out. Let's walk through these different withdrawal strategies.
The first one we're gonna talk about is called the 4% rule, or the safe withdrawal rate. And this suggests that we're going to take 4% out of our portfolio in the first year of retirement, and then we're going to adjust that amount every year for inflation. There were some studies done back in the ‘90s by a financial advisor, and he really sought to understand how much could someone pull out of their portfolio every year without running out of money.
And he went back and looked at the stock market and the bond market since 1928 up through the ‘90s, and he ran a bunch of different calculations to figure out what that number was, and he settled on 4%That rule took off.
There was research done at the collegiate level, who also backed up this 4% rule, and it kind of became known then as the 4% rule or the safe withdrawal rate. And it's still widely used today. Another approach is to use what's called a bucket approach, or time segment approach.
And this is where you divide your assets into different buckets based on when you're going to need them. So you might have a short-term bucket that's invested in cash, and then you're going to have some mid-term and long-term buckets that are invested more for growth, and as time moves on, you're refilling that short-term bucket.
There's also what's called the safety-first approach, which looks at having enough guaranteed income to cover all your basic living expenses and then using one of the other approaches to provide discretionary income for retirement, like travel and home remodels.
I can tell you in my work with clients that when we're going through these different strategies, a lot of clients like the safety-first approach, where we're covering all their basic living expenses with guaranteed income, and then we're having other buckets on their balance sheet for discretionary income and also for growth.
When we're working with clients, it's not really an either-or, we actually look at using a combination of these different withdrawal strategies to give you the best, optimal outcome. It's essential that we're choosing these strategies again, that we're aligning these with our goals, our risk tolerance, our life expectancy. And this is really when I encourage you to work with a financial advisor, because they can help you analyze these different strategies and figure out which one works best for you, or is it a combination of them.
When we think about the investment side, again, this is on those withdrawal approaches, one option is to look at dividend-paying stocks and bonds. This can be a great source of retirement income. Dividends are payments made by companies to shareholders, typically on a quarterly basis.
And we usually think of these companies, they usually have a history of being stable, growing dividends. They can often be seen as financially healthy and reliable. This not only gives you income, but you could also see improvements right through the potential for capital appreciation as the value of those stocks go up.
Bonds, on the other hand, are fixed-income securities that pay interest regularly. So when you invest in bonds, essentially what you're doing is you're lending money to a corporation or a government entity, and in turn, they promise to pay you interest over a specific time period. And again, when working with clients, you really want to have a diversified portfolio.
These dividend-paying stocks, bonds can help you have a steady income stream while managing that investment risk. It's important to research and make sure that you're selecting high-quality stocks and bonds that align with your risk tolerance and your income needs.
Another approach that you may look at is annuities. Annuities can have a good and bad name. There are pros and cons and annuities are really insurance products that are designed to provide a guaranteed income stream. There are a bunch of different types of annuities, fixed annuities, variable indexed.
Fixed annuities offer guaranteed interest rates, stable payments, while variable annuities or index annuities allow more for growth and investments in a different range of securities, and those index annuities can offer the potential for higher returns with some downside protection. The benefits, when we look at pros and cons of annuities, they can provide guaranteed lifetime income, protection from outliving your savings, and the potential for tax-deferred growth.
But what you also want to make sure that you look out for are fees, surrender charges, and less liquidity compared to other investment options. Make sure you understand what are those terms, what are those conditions, and how is this going to fit into my overall financial plan, and this is when consulting with a financial advisor can help you make that informed decision.
Now, asset allocation, when we think about the investments and how important it is, so asset allocation, diversification, are important parts of a successful retirement investment strategy. I mentioned earlier, when we're in our working years and we're saving money, that investment strategy is very different.
Should be different from when we're in retirement and we're starting to pull money out of our portfolio. So we want to make sure that we're spreading out our assets across different asset classes, stocks, bonds, cash, so that we can balance risk and return. So this asset allocation can help us manage risks. It can help provide more stable returns over time.
A well-diversified portfolio can really help us have more stability. But it's also important that we're reviewing this on a regular basis. We have to make sure that as time moves on, as we have market changes, that this remains, that our investment portfolios are still aligned with our risk tolerance, our investment horizon, our financial goals. So, yes, diversification and asset allocation can be wonderful tools to help us reduce this risk, but we have to make sure that we don't just, it's not something you want to just set and forget it and not look at it.
It's something that you want to regularly look at and address. Especially as things are changing in the market. I don't know about you, but if you think back to how much things have changed in the last four years since Covid, you could get whiplash with how much things have changed. So think about the market, inflation, geopolitical risk.
There's been a lot going on, and so we've got to make sure that we're staying attuned to that and not just having a blind eye to it. Let's recap some of the things that we've talked about today. We've been talking about how do you maximize income from your retirement through social security strategies, pension options, creating income from your investments.
Here are some key steps I want you to take. I want you to review your social security options. I want you to go, if you haven't done it in a while, go to the Social Security website, which is ssa.gov, we'll probably link that in the show notes. You can create an online profile, and you can pull your Social Security statement. Take a look at it, review it, become familiar with it.
Understand what your options are. Work with someone who can help walk you through and actually model that out for you to show if you take Social Security at different time frames, what's that going to look like for you. If you have a pension, evaluate those options so that you can make better decisions.
And don't forget about those lost pensions. We had a client earlier this year, they got a letter from Social Security that said hey, you might have a pension from a previous employer. Somewhere he hadn't worked in 20 years. And guess what? He did. He has a pension with that company. And then develop a strategy about how you're going to get income from your investments.
Focus on diversification, focus on risk management, but again, it's not just set it and forget it, but what's our strategy gonna be to generating income from those investments? In our next episode, we're gonna be diving deep into Social Security. Again, that's one of the most crucial parts of retirement planning, so be sure to tune into that.
Thanks for joining us today. If you haven't done so already, subscribe to the channel so that you get alerts about new episodes. And if you're ready to take the next step in securing your financial future, I suggest you go to our website and book a free consultation. So all you're going to do is you're going to click the link in the description. It'll take you right to our website, and you can schedule a 30-minute call, and that way we can go through and personalize some advice to you and your unique situation. So again, don't forget to like and subscribe for more retirement planning tips and strategies, and we look forward to talking with you all soon. Bye now.
Voiceover: The Social Security Administration has not approved, endorsed, or authorized this presentation. There is no charge to attend this event or subsequent consultations. Contact the Social Security Administration for complete details regarding eligibility for benefits. This material is intended for general public use. By providing this content, Park Avenue Securities LLC and your financial representative are not undertaking to provide investment advice or make a recommendation for a specific individual or situation, or to otherwise act in a fiduciary capacity. If you'd like additional information about our services, you can visit our website at curryschoenfinancial.com or you can call our office at 850-562-3000. Again, that number is 850-562-3000. This podcast is for informational purposes only. Guest speakers and their firms are not affiliated with or endorsed by Park Avenue Securities, Guardian, or North Florida Financial and the opinions stated are their own. April and John are registered representatives and financial advisors of Park Avenue Securities LLC. Address, 1700 Summit Lake Drive, Suite 200, Tallahassee, Florida, 32317. Phone number 850-562-9075. Securities, products, and advisory services offered through Park Avenue Securities, member of FINRA and SIPC. April is a financial representative of the Guardian Life Company of America, New York, New York. Park Avenue Securities is a wholly-owned subsidiary of Guardian. North Florida Financial is not an affiliate or subsidiary of Park Avenue Securities or Guardian.
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