Terry Bork CLU ChFC, President   |   Aurum Insurance Services   |   D: 440-605-7230   |   C: 440-666-6032   |   tbork@auruminsurance.com   |   www.auruminsurance.com

Retirement Income Planning

In retirement, assets which are in a lump sum must to be turned into a cash flow stream sufficient to fund your desired lifestyle for life. This withdrawal rate is the source of the biggest concern to everyone in retirement. No matter the level of financial resources, there is always the fear of running out of money.

One rule of thumb claims that assuming a 60/40 mix of stocks and bonds, withdrawing 4% of your retirement savings in year one and continuing to increase that amount to match inflation each year is a safe strategy to protect your principal from being depleted.

While rules of thumb can be helpful everyone’s situation is different and as you near or enter retirement there are several factors to consider.

Individual Factors To Consider

In looking at the cash flow and capital requirements it is important to factor in the potential cost of health care.

Fidelity Investments recently estimated that the typical 65-year-old couple will need $220,000 to cover health-care expenses during their retirement years.

Importantly, that figure does not include long-term-care expenditures which should be addressed separately.

The impact of income taxes in retirement should be examined closely.

Many people concluded they will be in a lower tax bracket in retirement and have thus deferred income into the future through the use of 401k plans and IRA’s.

If you have a majority of your retirement income provided by distributions from your 401k, it means you will have a substantial amount of taxable income in retirement.

An important tax planning consideration is the required Minimum distribution or RMD. At age 701/2 you are required to take minimum distributions from your 401k plan whether you want them or not. These required distributions could cause unintended income tax consequences.

Sequence of returns risk, has to do with the order in which your investment returns occur.

If a high proportion of negative returns occur in the beginning years of your retirement it will have a lasting negative effect.

For that reason the idea of “bucketing” or having multiple sources of income to draw upon so you do not need to draw upon equities in down markets is a good strategy to employ.

Finally, when you choose to begin your social security benefits, and how those benefits are taxed, will have a major impact on your spendable retirement income and should be carefully considered.

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