Laying A Firm Foundation in Retirement

The cornerstone of retirement planning is eliminating debt and mortgage payments. Cash flow is king in your golden years and debt can cannibalize your cash positions like no other expense. Debt reduction needs to begin no later than five years out from your retirement date. You’ll still have living expenses that will more than likely increase each year, so debt and mortgage payments need to be eliminated before you retire.

Social Security income is the footing of your retirement, a base on which to build a firm foundation. It’s guaranteed lifetime income you can’t outlive and the goal is to maximize your benefits by delaying Social Security income until age 70. Remember, the decision to delay Social Security is a “we” decision not a “he” decision. Most women will outlive their spouses, so waiting until age 70 to receive your benefits will benefit her in the long run. But Social Security income will not be enough.

You need to create a secure, inflation adjusted lifetime income floor as your financial foundation to fund the expense gap that Social Security doesn’t fill. There are three basic options in guaranteed lifetime income: single premium immediate annuities, deferred income annuities and indexed annuities with an income rider. All of these annuity contracts can add an inflation-adjusted rider to guarantee annual increases for the lifetime of the annuitants. You need to determine which product is most suitable for your situation.

Combining a guaranteed lifetime annuity with guaranteed lifetime Social Security benefits can generate secure revenue to offset living expenses in retirement and generate some peace of mind in retirement. One last thought: It should be antithetical to pay predictable monthly living expenses with unpredictable income from bond interest and stock dividends. Building a floor of predictable and reliable income is the first step in constructing a successful retirement.