How to create your retirement income strategy
Now that you're retired, there are a few things you need to know to manage your money effectively. Here are some retirement income strategy tips to help.
Information courtesy of USAA Life Insurance Company and USAA Life Insurance Company of New York
Video Transcript: Our Approach to Retirement
Video Duration: 1 minute 44 seconds
Transcript Date: February 21, 2023
Our approach Elapsed Time 0 Seconds [00:00]
Hello, I'm Amanda Reyes, one of your retirement income specialists, and together we'll create a plan that will help you live your best life in retirement.
I'll help you navigate the risks to retirement like inflation, decisions around Social Security and medical expenses.
Our approach to retirement comes from understanding the needs of the military community. We'll help you wisely distribute your retirement money that took you a lifetime to save with a balanced strategy that focuses on income growth and protection.
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First, we'll focus on income. The goal is to create enough guaranteedSee note1 income in retirement to cover all of your essential expenses. This can be done through Social Security pensions and annuities, an annuity issued by an insurance company that helps protect you from outliving your income.
It's a fixed amount of money you'll get each year for the rest of your life.
When your expenses are covered, it allows the investment component of your portfolio to grow. The growth component of our strategy is all about offsetting inflation and growing your current assets.
We work with Charles Schwab. They're trusted providers that share our core values. Their experts can help grow your investment portfolio.
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And finally, we'll work to protect your retirement. We'll focus on emergency funds, long term care and life insurance.
It can take years to build up retirement savings and we want to make sure to protect your retirement plan from common risks. Our approach can help you avoid risks and help you live your best life in retirement.
Contact us by scheduling a call, calling us directly or visiting usaa.com/retirement.
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See note1 Guarantees apply to certain insurance and annuity products and are subject to product terms, exclusions and limitations and the insurer's claims-paying ability and financial strength.
An annuity is a long-term insurance contract issued by an insurance company designed to provide a retirement income stream for life. Once the contract principal is converted into an income stream, you will no longer have access to your principal as a lump sum. Terms, conditions, limitations and surrender charges may apply.
Life insurance and annuities provided by USAA Life Insurance Company, San Antonio, TX and in New York by USAA Life Insurance Company of New York, Highland Falls, NY. All insurance products are subject to state availability, issue limitations and contractual terms and conditions. Each company has sole financial responsibility for its own products.
USAA Investment Services Company (ISCO), a registered broker-dealer and a registered investment adviser, provides referral and marketing services on behalf of Charles Schwab & Co., Inc. (Schwab), a dually registered investment adviser and broker-dealer. Schwab compensates ISCO for these services.
Follow these strategies and tips to manage your retirement income.
What will you spend?
It's important to start by calculating your expenses. You should separate essential expenses, such as food, housing, transportation and medical premiums or copays, from discretionary expenses like entertainment and travel. Although statistics show that on average overall spending tends to decrease as we age, some expenses like health care costs can increase. Also, more people are entering retirement with other debt such as student loan obligations for their children or grandchildren. To avoid overspending in retirement, you should consider a long-range plan to replace at least 70% to 85% of your gross pre-retirement income. Once you are within five years of retirement, focus on a more precise analysis of your actual income and expenses in retirement.
What are your guaranteed sources of retirement income?
We used to think about retirement income as pension planning, but times have changed. Fewer employers now offer pensions, which means it's up to you to create a retirement income plan. Guaranteed incomeSee note1 is the lifetime income streamsSee note2 generated from guaranteed income resources.
Those can include:
- Social Security benefits, government or military pensions
- Private pensions or benefits that are backed by the Pension Benefit Guarantee Board
- Income annuities such as Single Premium Immediate Annuities
- Deferred Income Annuities
- Qualified Longevity Annuity ContractsSee note3
- Some variable annuities with Guaranteed Minimum Income Benefits or Guaranteed Minimum Withdrawal Benefits
What's the difference between your estimated retirement spending and guaranteed income?
If your guaranteed income exceeds your expected retirement spending, then congratulations. But many of us won't be so fortunate and will have a shortfall between guaranteed income and expenses. It's important to have guaranteed income that covers at least your essential expenses. If you have a gap between income and expenses, then read on.
What other resources can you convert into retirement income?
Investing your money is one thing but generating income from investments while you pull money out of your retirement account may be another. Consider all your investments earmarked for retirement such as employer-provided plans, individual IRAs and other investments. A safe withdrawalSee note4 rate from these resources will depend on how you are invested, how long you will make withdrawals, market conditions, how much you take out periodically and other factors. Some of these resources may be used to purchase more guaranteed income through income annuities. In addition, you may have equity in your home that can be turned into income through a home equity loan or a reverse mortgage.
What if you're still facing a shortfall in retirement income?
Many people have the goal to retire early. The combination of your guaranteed income and other income resources should allow you to do so. If not, it's time to consider how you might increase your income. You could delay retirement, work part time during retirement, or decrease spending by reducing large expenses such as housing or support for other family members.
A fixed income can come with unique challenges. As you're living in retirement, continue to think about ways to protect your income and lifestyle.