Help Me Retire Podcast - Episode 14
- Mike Brown
- Feb 13
- 9 min read
Finding income in retirement
Show notes:
This is the Help Me Retire Podcast… with your host… Mike Brown… Senior Wealth Advisor with Raymond James Financial Services… and head of Brown Family Wealth Advisors…
Mike is the best-selling author of Your Way to True Wealth: How to Make It Happen, Make It Last, and Make It Matter…
He and his team have been helping clients pursue their dreams of financial independence for the past 30 years… and in the Help Me Retire Podcast… he’ll share his best ideas with you…
And now… here’s Mike…
In this episode of the Help Me Retire Podcast… Part three of our 7-part series... 7 steps to a successful retirement...
Parts one and two... all about envisioning what you want retirement to look like... and figuring out what it’s going to cost...
In today’s episode... we’re going to figure out how to pay for it all... finding income in retirement...
Think about this... when you go to the grocery store this weekend... they won’t let you pay with your brokerage statement... they don’t care whether your portfolio beat the S&P last year... you can’t buy milk and eggs with... unrealized capital gains...
You need income... you need cash... to pay your bills...
It’s always been that way... and it’s not going to change once you retire...
What will change... is where you find that income... and I’ve got some ideas for you on where to look for it... right after this...
If you’re listening to this podcast series... and you’re thinking about retiring...
Here’s a list of the seven steps we’re following if you want to improve your chances of having the kind of retirement you deserve...
It starts with a vision... of what you want retirement to look like... that’s the first step...
Step Two... in our last episode... putting together a spending plan...
You’re now listening to Step Three... finding the income you’ll need to support that spending plan...
Then in Step Four... next episode... we’ll start building an investment portfolio to help you pursue those goals...
Step Five... how to protect yourself... protect your wealth... protect your wealth... protect your privacy...
Step Six... we talk taxes... and create a plan to make sure you’re not paying more taxes than you need to...
And finally... in Step Seven... I’ll help you create your legacy... some ideas for passing along your wealth... and your wisdom... along to future generations....
Today... let’s start by making a list... a list of everybody who’ll be sending you money after you retire...
We call these... external sources of income...
You might qualify for a pension...
In which case, you’ll need to decide how to take it...
Will you get a check every month for rest of your life?
Or do you have the option of taking it all as a lump sum... and roll it into your IRA to defer the taxes on it?
You’ll also have to decide about whether that pension will be paid just over your lifetime... or will benefits continue in some form for your spouse if you die first...
Or do you want some assurance that your pension will be paid for at least a certain number of years...
All those variables will help determine how much your pension check will be...
You don’t have to make a final decision until you decide to start receiving your pension... so for now... let’s use the default options... your life only if you’re single... and the 50-percent joint-and-survivor option if you’re married...
Find out what amount that will be each month... and put it on your list of external income sources...
Social security... we’re going to spend some time on that in just a minute... so I’ll skip the details for now...
Let’s also put on your list... any money you’re expecting from your current employer...
Deferred compensation...
Severance... vacation pay... deferred bonuses...
Options... restricted stock from your employer...
How about other income sources...
Alimony... financial support from an ex-spouse...
Rent... royalties... annuity payments... income from a trust...
Inheritance...
Money from the sale of assets... like a home... or interest you own in a business...
And finally... you might want to check with your state for unclaimed property... you never know...
So now you’ve got this list of money you’re expecting in retirement... some of it every month... maybe some of it every year... some of it a one-time occurrence...
Need to know how much you’re expecting... when you think you’ll get it... and how long you’ll be receiving it...
Next... let’s dive a little deeper into one of the biggest sources of income most people receive in retirement... and that’s Social Security...
If you’re eligible for Social Security... and you haven’t started drawing it yet... you’ve got some big decisions to make once you retire...
Same goes for your spouse if you’re married... and if you are married... you need to be making these decisions together...
There might be ways to coordinate your benefits... and getter higher benefits... maybe even get them for longer...
We’re just going to touch on just the basics in this podcast... if you want to get together and go over your specific situation... we’ve got some calculators we use to help people make better decisions on when each spouse should file...
Happy to walk you through that process sometime...
But I’ll bet you already have an idea of how Social Security works...
You’ve been earning a paycheck all these years... and part of it’s been going to Social Security...
Your employer has been paying in the same amount on your behalf...
Once you have enough credits to qualify... you’ll be eligible for Social Security retirement benefits...
The first number you’ll want to make note of... is something called your Full Retirement Age... or F-R-A... that’s the age at which you qualify for all the benefits you’ve accrued... and yours is either going to be age 66... 67... or somewhere in between those two ages... depending on when you were born...
Now, you can claim Social Security as early as age 62... but the amount you’ll get will be 25- to 30-percent less than your full benefit... depending on how early you take it...
You can also postpone Social Security benefits all the way until age 70... and they’ll add 8-percent to your full benefit... for every year you wait...
How much Social Security will you be getting when you claim it? Two ways to get an estimate...
They send out benefit estimate statements from time to time...
Or you can open a my Social Security account on their website... and use the online calculator to get a more accurate estimate of your benefits... based on how long you plan to work... and when you plan to claim...
So there’s the first big decision... do you take Social Security early... get a few years’ head start... even if you get less money each year?
Or do you delay benefits... and get more money... for fewer years?
The thing to recognize about Social Security... is that benefits are based on two things...
How much money you earned over the 35-highest-earning years of your career...
And your life expectancy... which is based on when you were born...
So if you live exactly as long as the actuaries think you will... it won’t matter whether you claim Social Security early... late... or on time...
You’ll get the same amount of money over the rest of your life... whichever option you choose...
That means... if you’ve got longevity in your genes... if your family members tend to live longer than average... you might want to lean toward delaying Social Security... because you’ll get a larger benefit for possibly more years...
But if for whatever reason... you think you might not live a normal life expectancy... again, maybe because of your family history... or maybe you’ve got a serious health condition... then consider claiming Social Security early... the payments will be smaller, as we know... but you’ll get more years of that income... and sooner...
It's also really important to understand how spousal benefits work with Social Security... as well as survivor benefits...
And this can get a little complicated...
Did you know the Social Security Administration says there are 9-thousand-409 different combinations of filing dates between two spouses?
Suffice it to say... we don’t have the time to get into all the nuances in our time today...
But at some point... you’re going to need to know how much your Social Security benefits will be... how much your spouse will be receiving... and when you’ll each start receiving that income in retirement...
One you have a good guess... pencil that number into the list of income sources we’ve been putting together...
In just a second... we’re going to see how this total income number... compares with the total spending number we came up with in our last episode...
How will your income... compare with your outflow once you retire? And what will you do... if you come up short?
So now you’ve got two numbers...
A spending goal... how much money you’d like to spend each month... or each year... once you’re retired...
And an income number... made up of all the external income sources you expect to receive in retirement... Social Security... pensions... and so on...
Now... if you’re like most people... your spending number is going to be bigger than your income number...
We hardly ever see people with an income surplus... that’s pretty rare... and those poor folks have to come up with a way to put that extra money to good use...
Wouldn’t you like to have that problem when your retire?
Everybody else... and I mean almost everybody... period... will have a gap... between how much they want to spend... and how much income they’ll be receiving when they retire...
Most people have a gap between the retirement income they expect in retirement... and how much they want to spend...
So, if that’s you... don’t worry yet... at least until we compare that gap... to the total of all of your savings and investments...
Take that number... the gap you’re expecting to see each year...
And divide that by the sum of all the money you’ve saved... your 401-k... your lump-sum pension... IRAs... Roth IRAs... money you’ve got in the bank... mutual funds... annuities...
Not your home equity or money that’s tied up in a business... we just want the total of your savings... and investments...
Divide your annual retirement spending gap... by your total savings and investments... and come up with a percentage number...
You probably already realize... the smaller this percentage is... the easier it’s going to be to have a financially successful retirement...
What’s a reasonable percentage?
As a general rule of thumb... and that’s all it is... that if the answer is four-percent or less... you’re probably in pretty good shape...
If it’s five- or six-percent... your situation will likely require some work... but it might be doable with a few modifications...
But if your number is higher than six-percent... you might not be ready to retire yet...
My advice would be to sit down with a professional retirement planner... and go over the numbers...
Start adjusting some of those variables... check your math...
And see if there’s a way to make it work... maybe the solution is as simple as working an extra year... or saving more money before you retire... perhaps shaving down your spending goal a little bit...
What we’re talking about today is just a simple formula to get you thinking...
It’s no substitute for a year-by-year projection... plan... that’s what you really need before you retire...
The last think you want to do is assume... or hope... everything will come out all right...
You don’t want to realize somewhere down the road that you’re going to run out of money...
You don’t want to have to go back to work... I promise... it won’t be as much fun the second time...
Do the work... do the math... make a plan... before you hand in your two-week notice...
So, next step... how will we fill that spending gap?
You’re going to fill that gap each year... from the money you’ve saved and invested all these years...
You’re going to create a stream of investment income that’s enough to make up the difference between what you want to spend... and the income you’re receiving from other sources...
And you need to invest that money now... not just for income... but for a stream of income that increases over time... for the rest of your life... even faster than your cost of living...
In our next episode... Step Four... I’ll show you what kind of investments you’ll need to create that income...
And we’ll start putting together an investment portfolio... for the rest of your life...
If you’ve come this far with me... you’ll want to be sure and listen to the next episode...
Until then... I’m happy you’re with me... and I’m happy to help you retire one day... so that the rest of your life... can truly be... the best of your life...
We’ll see you next time...
Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC.
Investment advisory services are offered through Raymond James Financial Services Advisors, Inc. Brown Family Wealth Advisors is not a registered broker/dealer and is independent of Raymond James Financial Services.
Any opinions are those of Mike Brown and Brown Family Wealth Advisors and not necessarily those of Raymond James. This material is being provided for informational purposes only and is not a recommendation. There is no guarantee that these statements or opinions will prove to be correct. Investing involves risk, and you may incur a profit or a loss regardless of the strategy selected. Past performance is not indicative of future results. Prior to making an investment decision, please consult with your financial advisor about your individual situation.
