5 Keys to Secure Adequate Retirement Income

By Terry Savage August 16, 2015

This article appears at the following website: chicagotribune.com

When you retire, will your money last your lifetime? That's the question facing the baby boomer generation -- and their adult children, who might have to support them as well as plan for their own retirement.

A new survey by Northwestern Mutual gave this gloomy picture of the generation approaching retirement. One-third of U.S. adults believe there is greater than a 50 percent chance they will outlive their savings -- and 12 percent are sure their savings will run out someday!

What can you do to boost and guarantee a lifetime income and its buying power? Here are some things to consider:

1. Delay Social Security until Full Retirement Age. It's tempting to take Social Security at the first opportunity -- age 62. But doing so not only reduces your benefits by about 30 percent, but it also reduces the base upon which future cost of living increases are paid. And for every year you delay after full retirement age until age 70, when benefits must be taken, you get an additional 8 percent increase in benefits. Here's a calculator on the AARP website to help you make that decision. http://www.aarp.org/work/social-security/social-security-benefits-calculator/.

2. Respect past pensions. Very few people get pensions these days -- promises of lifetime income based on past salaries. Most employers have converted to defined contribution plans -- 401(k) or 403(b) plans -- where your future income is based on your regular contributions and investment success. When changing jobs don't cash in a pension promise, no matter how tempting the offer.

3. Consider an immediate annuity for a portion of your retirement assets. Not to be confused with investments in tax-deferred annuities, an immediate annuity promises a check a month for life (or yours and your spouse). You can never "run out" as long as you live. There are two drawbacks: 1) when you die, the insurance company keeps the balance, and 2) the check remains fixed, and its buying power will be diminished by future inflation. (At only 3 percent annual inflation your buying power will be cut in half in 25 years!) To find out how much monthly income you could receive for a lump sum deposit into this insurance contract, go to www.ImmediateAnnuities.com.

4. Purchase a "longevity annuity." You give the insurance company a lump sum now -- but delay payouts until you reach age 75, 80 or even 85. You'll be surprised at the large payment you will receive, just when your other money is running out -- if you live that long. These are now approved for IRA and 401(k) accounts, and money invested in them is not counted for Minimum Required Distributions. To see how much you could receive in a deferred payout annuity, go to: www.StantheAnnuityMan.com and click on "Get an Income Later" quote.

5. Save more now and invest a portion for growth.

It's scary to be invested in stocks once you're retired. You won't be contributing more to make up for losses. But over a 20-year period, the stock market has a proven track record for positive returns. Growth in this portion of your retirement money will help offset the impact of inflation.

There's no magic bullet for guaranteeing a lifetime income that will keep up with your need for purchasing power. But setting up a strategy now not only can create income but more peace of mind as well. And that's The Savage Truth.

(Terry Savage is a registered investment adviser and the author of four best-selling books, including "The Savage Truth on Money." Terry responds to questions on her blog at TerrySavage.com.)