I'm a Banking Expert: How To Ensure a Reliable Income Stream, No Matter How Long Retirement Lasts
According to a recent study from the Employee Benefit Research Institute (EBRI), many retirees don’t withdraw funds from their assets in a predictable way throughout their retirement. The study found that from years one/two to 21/22 in retirement, the median household net assets outside of housing fell by 43%, 30% and 42% for low-, middle- and high-asset retired families, respectively.
The study noted that guaranteed income streams, such as a defined-benefit pension, could play a critical role in helping retirees handle financial shocks that may arise later in their golden years.
As a result, we consulted with experts to determine how to ensure a reliable income stream, regardless of how long retirement lasts, so you can be prepared for potential financial surprises.
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Consider Annuities for Consistent Income in Retirement
Robert R. Johnson, Ph.D., chartered financial analyst (CFA) and professor of finance at Creighton University, noted that the greatest fear of retirees and near-retirees is running out of money in retirement, which is exacerbated by increasing human longevity.
He noted that, even though annuities often get a bad rap, they can provide guaranteed income and peace of mind for the retiree and their family. He believes that having an annuity cover your basic living expenses is a terrific cornerstone to a retirement income plan.
A new BlackRock study found that 64% of savers feared outliving their savings, but 97% of annuity owners said annuities helped them worry less about running out of funds in retirement.
“In particular, a longevity annuity is a stream of payments that starts when an individual reaches a certain age, say 85. If you have a longevity annuity, you have a secure source of income late in your life at a reasonable cost,” Johnson added.
The main benefit of relying on annuity income is that you’re free to spend your funds in retirement on things you enjoy like travel or a vacation home. He believes that the peace of mind can’t be understated because you don’t want to be stressed about paying bills as you reach your 70s. The main benefit is that retirees with annuities are free to worry less about the ups and downs of the stock market.
Use Predictable Income To Cover Necessary Expenses
The EBRI study found that retirees need to consider how vulnerable they would be to potential shocks in their golden years, such as medical expenses or widowhood.
With outliving savings as a primary concern in retirement, it’s crucial that retirees use their resources effectively. The study acknowledged that Social Security can provide most retirees with a stable stream of income, but it may not be enough for a comfortable lifestyle for those with limited assets.
Steve Min, chief credit officer at Credit One Bank, advised that it’s preferable for necessary expenses to be funded by predictable income (Social Security, a pension, etc.). He believes that your predictable income is best suited to regular expenses such as housing costs, insurance, utilities, food and so on. However, if you don’t want to worry about running out of money, you’ll want to follow the next two steps.
Use Variable Income for Discretionary Spending
Min pointed out that your variable investment income (such as from a real estate rental property) can add flexibility to your spending and help mitigate concentration risk should a single source of income fall short. These income sources can provide an added boost to your discretionary spending, helping you enjoy your golden years.
Keep a Cash Buffer
Min recommends that retirees maintain a cash buffer sufficient to cover the minimum necessary expenses for at least 12 months and review their withdrawal method annually to ensure they’re prepared for potential medical emergencies in their later years. The experts agreed that a strong retirement income plan should evolve as your personal situation changes because life will be much different at 85 than it was at 65.
This article was provided by MoneyLion.com for informational purposes only and should not be construed as financial, legal or tax advice.
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