Don’t Depend on Volatile Income for Retirement Budget Items

Outside a pension from your employer, the government or military, there are three forms of guaranteed lifetime income: Social Security benefits, reverse mortgage income and guaranteed lifetime annuities. If you have a pension, you in the minority of retirees. The vast majority of retirees are left to use these three income sources. 

First, figure your monthly retirement budget including vacations, birthdays and holiday gifts. After you subtract your budget items from your Social Security income, you may have a monthly deficient. Whatever that deficient is, you need guaranteed income to make up for your budgetary short fall. So you need to determine what lump sum is required to generate guaranteed lifetime annuity income to cover the deficient. Your other option is to calculate what your home equity reverse mortgage will generate in monthly payments to you.

Your goal is to cover your monthly retirement budget and the ancillary items mentioned above with one or a more of these guaranteed income options. Another consideration is real retirement inflation, not whatever the government CPI annually declares. To underscore that point, over the last six years, Social Security has failed to provide an annual increase three times. And those increases were insignificant against the real rise of goods and services in retirement. So, you may want to consider adding a cost-of-living adjustment rider to your guaranteed lifetime annuity to provide an annual increase. 

The real risk in budgeting retirement is longevity risk. This singular issue compounds and complicates the prudent use of retirement resources. If the average survivor of a married couple is estimated to live to age 93, then guaranteeing income to age 100 is a reasonable time horizon to plan for. Remember, age 93 is the average. That means half of all married couple survivors will live longer. Willard Scott celebrated centurions on his TV show, and there’s more 72,000 in the U.S. Susanna Jones just died in May of this year at 116. She was a tri-centurion and a super-centenarian teenager. Jean Calment lived to age 122 and is the oldest person who ever lived according to the Guinness Book of World Records. Dr. Aubre De Grey, noted gerontologist, has said the person who will live to age 150 has already been born. To cover daily living expenses, you’re going to need guaranteed lifetime income.

###