ILMA Compoundings June 2017 - 30

BUSINESS HUB

Converting Retirement
Savings into Retirement
Income
By Murray Carter

ou've been saving diligently
for years, and now it's time to
think about how to convert the
money in your traditional 401(k)s (or
similar workplace savings plans) into retirement income. Hold on, not so fast.
You might need to take a few steps first.
EVALUATE YOUR NEEDS
If you haven't done so, estimate how
much income you'll need to meet
your desired lifestyle in retirement.
Conventional wisdom says to plan on
needing 70 percent to 100 percent of
your annual pre-retirement income to
meet your needs in retirement; however, your specific amount will depend
on your circumstances. First, identify
your non-negotiable fixed needs -
such as housing, food and medical
care - to get clarity on how much
it will cost to make basic ends meet.

Then, identify your variable wants -
including travel, leisure and entertainment. Segregating your expenses into
needs and wants will help you develop
an income strategy to fund both.
ASSESS ALL SOURCES OF
PREDICTABLE INCOME
Next, determine how much you might
expect from sources of predictable
income, such as Social Security and
traditional pension plans.
Social Security: At your full retirement age (which varies from 66 to 67,
depending on your year of birth), you'll
be entitled to receive your full benefit. Although you can begin receiving
reduced benefits as early as age 62, the
longer you wait to begin (up to age 70),
the more you'll receive each month.
You can estimate your retirement
benefit by using the calculators on the

Social Security Administration website,
ssa.gov. You can also sign up for a My
Social Security account to view your
Social Security statement online.
Traditional pensions: If you stand
to receive a traditional pension from
your current or a previous employer,
be sure to familiarize yourself with its
features. For example, will your benefit
remain steady throughout retirement
or increase with inflation? Your pension will most likely be offered as either
a single life or joint-and-survivor
annuity. A single-life annuity provides
benefits until the worker's death, while
a joint-and-survivor annuity generally
provides reduced benefits until the
survivor's death.¹
If it looks as though your Social
Security and pension income will be
enough to cover your fixed needs, you

Annual income generated by $100,000 investment in a six-month CD
Income generated

$10,000

Income needed to beat inflation
$8,000
2006: $5,240
$6,000

$4,000
2016: $338
$2,000

$0
1986

1991

1996

2001

2006

2011

2016

Source: FactSet, J.P. Morgan Asset Management and Bankrate.com.
Annual income is for illustrative purposes and is calculated based on the six-month CD yield on average during each year and $100,000 invested.
Past performance is not indicative of future results.

JUNE 2017

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ILMA Compoundings June 2017

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