That Annuity ShowVirtually everything can be customized to fit us individually. And that includes a retirement income plan.
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New Retirement Rules of Thumb Still Have Issues
I’m not the only one who is advocating a new way of looking at planning for retirement. The New York Times wrote much the same thing (opens in new tab).
In the article, finance reporter Tara Siegel Bernard quoted experts who basically said the 4% rule of thumb (a “one-size-fits-all” rule) is dead. The experts, however, proposed new rules of thumb that aren’t much better. Their ideas were at least somewhat customizable to specific circumstances, but they followed the same narrow path: Pick an income goal and test it to see if it fails. If it fails, cut back on your spending.
A rule of thumb isn’t the best way to determine what is probably the most important financial decision in your life.
Consider Your Major Sources Of Income
To achieve your best plan for retirement income, look at all of the major sources of income that are logical for your situation and create a plan where the lion’s share is in the form of safe income.
That means:
- Understand and correctly use the different sources of income — dividends, interest, annuity payments and withdrawals (involving sales of securities) — from your savings.
- Select long-term planning assumptions for the markets and inflation with the understanding that you likely won’t achieve them in the short term.
- Monitor your plan, re-project the planning results in real time and update your plan if necessary. Note: The more safe income you have, the less volatility you will contend with.
Expect Variability in Results When Planning
Let’s look at how the above approach might work for a consumer who develops a plan with Go2Income guidance. We looked at the results for Go2Income plans ordered over the week ending Sept. 16. The average visitor to Go2Income had retirement savings of $1.6 million (about half was in a rollover IRA), and half of these retirees wanted to leave a legacy of their current savings. Sixty-three percent were married with an average age of 66.
Based on all these stats, the average Starting Income Percentage (SIP) was 5.01%. So, did we declare victory with our new 5% rule of thumb? Nope. It’s not about being the highest, it’s about being the right fit. Also, the SIP is only the start (no pun intended) of a Go2Income plan. It is important because it tells you the contribution of income from your savings to meet your income goal. But a plan also needs to address inflation, lifetime income, legacy and liquidity.
Even so, since it’s the first thing a visitor sees, you ought to know it needs to be personalized. The SIP for these visitors ranged from 3.98% to 7.36%. There are lots of factors impacting that result, but age, gender and marital status are keys, with a male only, female only and couple averaging 5.54%, 4.87% and 4.97%, respectively.
Using SIP to Personalize Your Plan
I apologize for all the numbers, but a plan for retirement income is defined by the kind of retirement you want and deserve. One thing that shows up immediately is how the pricing of annuity payments affects your plan. With the increase in interest rates and improvement in annuity payout rates, all SIPs are higher than they were at the beginning of the year — from 4.55% to 5.01%.
And, of course, there are additional plan options you can adjust to meet other SIP or retirement objectives. For example, if you want to rely on the inflation protection of Social Security benefits or income-producing real estate, you might build in a lower inflation rate. A reduction from 2% to 1% in the assumed annual inflation would increase the average SIP from 5.01% to 5.54%.
Even more than a T-shirt, the plan must be tailored just for you — and your SIP is an efficient way to set started.
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The discussion is not meant to provide any legal, tax, or investment advice with respect to the purchase of an insurance product. A comprehensive evaluation of a consumer’s needs and financial situation should always occur in order to help determine if an insurance product may be appropriate for each unique situation.
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