No matter what stage of life you're currently in, one thing is certain: Funding retirement is far different today than it was for your parents' or grandparents' generations. Today, you're responsible for creating and managing your own retirement paycheck. There are steps you can take today to begin the process of creating a lifelong paycheck, whether you're nearing retirement or decades away.
If you’re thinking about retirement, you’re probably in one of two groups. If you're a pre-retiree, you’re still working, doing the best you can to prepare for the day when you can transition into retirement, excited about the possibilities of a new chapter in your life. On the other hand, if you're knocking on the doors of retirement, you may have gone from being excited to being anxious. Now what? Have you saved enough? What if the market goes down again? How will you make your money last as long as you do?
No matter what stage of life you're currently in, one thing is certain: Funding retirement is far different today than it was for your parents or grandparents' generations. Today, you're responsible for creating and managing your own paycheck in retirement.
Even if you’ve been diligent about saving for retirement in 401(k)s and IRAs, the strategies you use to accumulate funds for retirement aren't necessarily the same strategies you'll need to make your money last through retirement. In some ways, it's akin to preparing for a climb to Mount Everest. You're likely to focus your efforts on reaching the summit—or, in this case, reaching retirement. But once you get there, you must also have a plan for getting down the mountain safely. Of all the accidents that happen on Mount Everest, 80 percent happen after climbers have reached the summit and are on the descent.
So, how can you ensure a successful journey 'down the mountain' with the confidence to live the life you envision throughout retirement? The key is to turn part of the nest egg you've worked so hard to accumulate into a reliable, steady stream of retirement income. One that cannot be negatively impacted by the market. One that will deliver guaranteed income as long as you live, even if you live to be 110 years old or older.
Here are three steps you can take today to begin the process of creating a lifelong paycheck, whether you're nearing retirement or decades away:
- Visualize your retirement.
What do you want it to look like? It's probably not enough to just say, "I'm going to golf every day in retirement." You need to ask yourself: Where will I live? How will I spend my free time? What hobbies do I want to pursue? Where do I want to travel? Will I be responsible for supporting any of my family members?
- Create a budget based on that vision.
Be detailed and realistic. Then, identify which expenses are essential—housing, food, transportation, health care and taxes—and align them with guaranteed sources of income that you expect to receive in retirement, such as pensions or Social Security. If you fall short, take steps to bridge the gap.
- Understand your options for bridging the gap.
While you may have many sources of retirement income from which to draw, only three possible sources are guaranteed for life: pensions, Social Security and income annuities.
Income annuities can be a valuable tool to help you create stable, predictable income in retirement. Income annuities are contracts you enter into with an insurance company. When you purchase an annuity, a portion of your retirement nest egg is converted into a steady stream of income, for as long as you live. You'll know in advance how much you'll receive each month, and your payments will never go down1—regardless of market volatility—even if you live to be 110 years old. Today, some annuities also offer the opportunity to grow guaranteed income streams from the upside potential of dividends.2
Using a portion of your assets to purchase an income annuity can be a valuable part of an overall strategy to create reliable income in retirement, but they're just one piece of what can be a complex financial planning puzzle. That's why it's important to work with a financial expert who can help you determine how you can use some or all of the various sources of income to create a retirement paycheck you can count on.
Ask a financial representative to evaluate your sources of income in retirement and to develop a plan to help you meet your goals.
1Income is guaranteed never to go down unless an income plan is chosen that specifies lower payments upon death of annuitant/joint annuitant.
2Dividends are not guaranteed.
All annuity guarantees are backed solely by the financial strength and claims-paying ability of Northwestern Mutual.