Managing Income in Retirement
Managing income in retirement
A typical couple's retirement income plan

Craig Brimhall, CFP
Vice president of retirement wealth strategies at Ameriprise Financial.

Brimhall says: "If you don't have beaucoup bucks, retiring is a challenge."

The first step, he says, is to "Start with the end in mind -- what you'd really like to have to live on -- and figure out whether it is within the realm of reality."

Many retirement planning experts say couples should shoot for getting 80 percent of their current gross income after retirement. While that's a simple guideline, Brimhall says, it would be better to arrive at a more precise number by examining Harry and Mary's budget and discussing their needs and wants during retirement. Without this information, we'll assume Mary and Harry would need about $88,000 in income per year.

Brimhall starts by adding up all of Mary and Harry's guaranteed income, including the amount of Social Security Harry will get at 66 and Mary will get at 62, plus the $750 pension that Harry will receive at 65. That gives the couple $3,502 per month or $42,024 per year. "Only halfway there," Brimhall says.

If Harry continues to work and save 10 percent in his 401(k) and his employer continues to provide matching contributions of 3 percent until he's 66, and Mary and her employer do the same, and they earn 5 percent on their savings, they could have as much as $415,451 in their accounts in five years, according to Bankrate's 401(k) savings calculator.

They also will earn a little money on Harry's inheritance. Even at a conservative 2 percent, their savings will increase by more than $10,408, bringing their total nest egg to at least $525,859.

To have a total of $88,000 in retirement income annually, they need to earn about $46,000 per year from their investments. "If you believe in a 4 percent sustainable withdrawal rate," Brimhall says -- the accepted "safe" withdrawal percentage so you continue to have money as long as you need it -- then the Typicals will only be able to withdraw about $21,000 per year from their savings. That leaves them short about $25,000 per year.

Brimhall says they might consider annuitizing their savings. According to ImmediateAnnuities, a joint life and 100 percent to survivor annuity worth $525,859 will pay about $31,000, bringing the Typical's annual income to roughly $73,000, which might be close enough for them, depending on where they live, their health and their lifestyle.

But Brimhall says a lot of people don't like to annuitize their savings for a variety of reasons. If they annuitize all of it, that leaves them with no emergency cash. What will they do if they need a few dollars to put a roof on the house or buy a new car? It also makes it difficult to leave their children an inheritance.

Brimhall says a better option is for Harry and Mary to take part-time jobs. If each makes $250 a week, they'll earn enough to augment their savings and the extra income won't interfere with their Social Security payments. The job Harry describes -- working at the golf course for minimum wage and golf privileges -- sounds perfect.


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