Retirement Income that Works for You

 In Legal & Financial

Retirement Income that Works for You

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f you saved 10 percent of your salary for the rest of your working life, do you think that would be enough? The so-called “experts” have long pegged that as the target savings rate, but how would you know whether it would meet your individual needs?

There are plenty of calculators out there to will tell you how much money you might have saved by the time you retire; some will even tell you how long that money might last. In the end, running out of money is not exactly a viable option.

That is why AARP recently redesigned its retirement calculator to focus on calculating your total retirement income instead of your guesstimated retirement savings.

After you enter information about your current savings and savings rate, you see how much annual income that might give you for the rest of your life and then learn ways to boost that income.

The calculator also shows you a red line that is the target income you would need to keep your current lifestyle after inflation. If it does not look like you will hit the target, the calculator gives you multiple options.

If you cannot access the new calculator from a desktop or laptop computer there are a few other ways to solve an income shortfall problem:

Delay your Social Security claim. Too many Americans race to claim Social Security the first day they are eligible. By claiming at age 62, you are significantly reducing your benefits for the rest of your life. If you wait a little longer your benefits check will grow as much as 8 percent annually (until you hit age 70) for each year you delay. The difference between claiming early at 62 and claiming late at 70 is staggering. Your check will be more than 70 percent larger if you wait until 70 to claim. However, there may be some people who cannot wait, such as those unable to work, or who would eventually get a much larger benefit on their spouse’s account when he or she retires.  The AARP Social Security Benefits Calculator will walk you through various strategies for maximizing your benefits.

Work a little longer. The longer you work, the more time you will have to save money (and build pension or delayed Social Security credits), and the later you will be forced to start drawing on your savings. Even part-time work can help tremendously. Bear in mind that some of your Social Security benefits will be withheld if you claim early but then continue to work. If you wait until your “full retirement age” (usually 66 or 67) to claim Social Security, you can collect your full benefit check even if you continue to work.

Adjust your lifestyle. This seems like a no-brainer, but the new AARP Retirement Calculator shows you the projected national averages for various living expenses in your retirement. You can choose which ones to cut back on and see the impact on your retirement income.

Consider buying an annuity. If it looks like you will not have enough income to support a long retirement, you might want to use a portion of your savings to buy a lifetime income annuity. In exchange for the upfront premium, a life insurance company will provide you a guaranteed level of income for the rest of your life – no matter how long you live. For example, if you paid $100,000 for a lifetime income annuity when you were 65, you would receive about $6,000 a year for the rest of your life, regardless of what the market does. It makes more sense to buy an annuity when interest rates are higher, because you will lock in a higher monthly payout.

In addition to the two tools mentioned above, AARP offers a comprehensive set of retirement decision-making tools at www.aarp.org/readyforretirement. Working forever is rarely a possibility, but running out of money should never be an option.

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