Preparing for Lifetime Income in Retirement

Preparing for Lifetime Income in Retirement

May 18, 2023

Preparing for Lifetime Income in Retirement

Retirement is a time of transition, and it often comes with a lot of questions and concerns about financial security. One of the biggest concerns for retirees is how to ensure a steady stream of income for the rest of their lives.

In the past, retirement planning models like the "70 percent rule" were more prevalent. This rule suggested that retirees would only need 70% of their pre-retirement income to live comfortably in their retirement years. While this approach might have worked for some retirees decades ago, it is now considered dangerously flawed in today's new normal retirement.

The truth is that the cost of retirement has significantly increased, to the extent that some retirees may need to save more than their pre-retirement income and make it last for up to 30 years. Planning for lifetime income in today's environment requires a focus on current realities rather than outdated formulas and methods.

The most significant risk faced by retirees today is their longevity. Life expectancy continues to expand with each passing day. For instance, an average, healthy 65-year-old has a life expectancy of 18.5 years1. Relying on standard life expectancy tables to calculate retirement needs can compound this risk since they assume everything will happen on time. However, what if it doesn't?

Instead of approaching retirement with trepidation, extended longevity should be embraced with gratitude. A longer life means more time with loved ones, opportunities to explore the world, or even the chance to acquire new skills.

Before you can plan for lifetime income in retirement, you need to assess your current retirement income sources, such as retirement accounts, Social Security, and pensions. This will help you determine how much additional income you'll need to meet your retirement income goals.

Determining Your Retirement Income Needs and Goals

Clearly Define Your Retirement Needs. As retirement becomes more expensive, it is vital to have a clear and well-defined vision of your ideal retirement. A strong vision makes it easier to set specific goals that consider your income needs and timeline. Since your vision may evolve over time, review your plan frequently and make adjustments when necessary.

Your retirement income needs and goals will depend on a variety of factors, including your lifestyle, healthcare costs, travel plans, and other expenses. It's important to take a holistic approach to retirement income planning to ensure that you have enough income to cover all of your needs and goals.

Know Your Retirement Costs

Regardless of your ideal retirement lifestyle, there will be associated costs. If you are concerned about outliving your income, take a deliberate approach to calculating your expenses. Create a budget that reflects your vision and factor in estimated cost-of-living increases over your lifetime. Don't forget to account for potential healthcare and long-term care expenses.

Determine Your Risk Tolerance

Depending on your goals and proximity to retirement, consider adjusting your investment strategy. While conservative investments may feel more secure, there are other risks to consider, such as inflation or the possibility of outliving your income. With retirement potentially lasting 30 years or more, you might want to consider investment options that offer growth to maintain purchasing power. Seeking guidance from a financial professional can help you make personalized decisions based on your goals, lifestyle, timeline, and risk tolerance.

Consider Downsizing Your Lifestyle

Many people choose to downsize their retirement lifestyle either out of necessity or a desire for simplicity. This could involve moving to a smaller home, owning fewer or less expensive cars, or adopting a frugal approach to life.

The Role of Inflation in Retirement Income Planning

Inflation can erode the purchasing power of your retirement savings over time. It's important to take inflation into account when planning for lifetime income in retirement to ensure that your income keeps up with the rising cost of living.

Tax Treatment

The tax treatment of investments can vary depending on the type of investment and your personal tax situation. It's important to understand the tax implications of any investment before making a decision.

Developing a Comprehensive Retirement Income Plan

Retirement planning is more than just saving money. It's important to create a comprehensive retirement income plan that ensures you'll have enough money to cover your expenses throughout your retirement years. This plan should take into account your sources of income, your estimated expenses, and your investment strategy. A comprehensive plan will also help you identify potential gaps in your retirement income and come up with a strategy to bridge those gaps.

Creating a Diversified Retirement Portfolio

One key component of a comprehensive retirement income plan is a diversified portfolio. This means spreading your investments across different asset classes, such as stocks, bonds, and real estate, to reduce risk and maximize returns. By diversifying your portfolio, you can also provide a balance of growth and income-producing investments.

Maximizing Social Security Benefits to Enhance Lifetime Income

Social Security benefits can be a significant source of retirement income, so it's important to understand how this program works and how to maximize your benefits.

Understanding Social Security Benefits

Social Security benefits are based on your work history and how much you've contributed to the program over the years. The amount of your benefit will depend on your earnings record and the age at which you start claiming benefits.

When to Claim Social Security Benefits

When you start claiming Social Security benefits will impact how much you receive. You can start claiming benefits as early as age 62, but your benefit will be reduced. Waiting until your full retirement age, which is between 66 and 67 depending on your birth year, will result in a higher benefit. Delaying benefits until age 70 can result in an even higher benefit.

Strategies for Maximizing Your Social Security Benefits

There are several strategies you can use to maximize your Social Security benefits, such as coordinating benefits with your spouse, delaying benefits, or using a claiming strategy called "file and suspend". Working with a financial advisor can help you determine which strategy is right for you.

Using Roth IRAs for Tax-Free Retirement Income

Roth IRAs can be a valuable tool for managing taxes in retirement. Contributions to a Roth IRA are made with after-tax dollars, but withdrawals in retirement are tax-free. Using a Roth IRA in concert with lifetime income products can help ensure tax-efficient retirement income.

Minimizing Taxes on Retirement Income

There are several strategies you can use to minimize taxes on your retirement income, such as managing your withdrawals from different accounts to reduce your tax bill or taking advantage of tax breaks for charitable contributions. A financial advisor can help you identify the right strategies for your situation.

Monitoring and Adjusting Your Lifetime Income Plan Over Time

Your retirement income plan is not set in stone. It's important to regularly review and adjust your plan as your goals and needs change.

The Importance of Regular Plan Reviews

Regularly reviewing your retirement income plan can help you identify potential gaps or inefficiencies and make adjustments as needed. You should review your plan at least once a year, or more often if there are significant changes in your life or financial situation.

Adjusting Your Plan to Meet Changing Goals and Needs

Your retirement goals and needs are likely to change over time. For example, your expenses may increase as you age or you may decide to relocate. It's important to adjust your plan to reflect these changes and ensure that your retirement income is still sufficient to meet your needs.

Strategies for Dealing with Unexpected Changes or Challenges

Unexpected changes or challenges can impact your retirement income plan. For example, a market downturn or unexpected expenses can put a strain on your finances. Having a contingency plan in place can help you weather these storms and ensure that your retirement income plan remains on track. In conclusion, preparing for lifetime income in retirement is a crucial step toward financial security and peace of mind. By evaluating your retirement income needs and goals, exploring different types of lifetime income products, and developing a comprehensive retirement income plan that includes lifetime income products, you can ensure a steady stream of income for the rest of your life. With the strategies discussed in this article, you can maximize your Social Security benefits, manage the tax implications of lifetime income products, and adjust your plan over time to meet your changing needs and goals. With careful planning and the right financial products, you can enjoy a comfortable and financially secure retirement.

Working with a Financial Advisor to Develop Your Plan

Developing a comprehensive retirement income plan can be complex, which is why working with a financial advisor can be helpful. At Flagship Financial Advisors we can help you identify your goals and develop a plan that aligns with those goals. We can also provide ongoing support and guidance as you navigate the different stages of retirement.

Today's retirement plans should be grounded in current realities. Your retirement vision, shaped by your needs, desires, and beliefs, should serve as the primary benchmark when determining how much you need to save. Having a realistic plan, a sound strategy, and a disciplined approach are essential for pursuing retirement success. If you require assistance in developing your retirement strategy, please call us at 615-823-2233.


1Murphy SL, Kochanek KD, Xu JQ, Arias E. Mortality in the United States, 2020. NCHS Data Brief, no 427. Hyattsville, MD: National Center for Health Statistics. 2021.