How Will You Cover Basic Expenses in Retirement?

A retirement plan has two fundamental parts: accumulation and distribution. All the years of saving (accumulation) are meant to fund all the years you live without working (distribution). Both are equally important and deserve careful consideration.

Creating an asset distribution plan can help frame your strategy of how to convert qualified and non-qualified savings into retirement income, including how much to access and when in order to ensure your money lasts as long as possible. Every retiree hopes to maintain his or her standard of living. Depending on individual needs and goals, a well-structured distribution plan can even include components that guarantee* income for life.

Look for Stability

Imagine you are a 65-year old man about to retire. You have saved $1 million dollars in various accounts and funds. You want to be sure you can meet your basic living expenses as well as continue the lifestyle you enjoy which includes golfing trips, visiting your grandkids, and keeping your season tickets for your favorite sports team. Your savings are well diversified, but stock market swings have you feeling uneasy. You wonder if there's a more stable place to put your money that will help meet your needs.

When you sit down with your budget, you determine you need an annual income of $90,000 to maintain your desired lifestyle. The majority of that amount ($65,000) will be spent to cover your basic living expenses (food, housing, utilities, medical expenses, etc.). The remaining $25,000 is money to spend at your discretion.

Your income sources include a pension of $12,000 per year and Social Security of $24,000, which adds up to $36,000 of your income coming from guaranteed sources. You need $29,000 more to meet your basic annual expenses, which you planned to draw from your $1 million of savings. But, after speaking with a financial professional, you learn that an immediate fixed annuity might be appropriate for your situation.

Use Guaranteed Sources

Using just $316,046 from your savings, you can purchase a Lifetime Income Annuity* that provides $29,000 per year of guaranteed income for as long as you live. This, coupled with your pension and Social Security, ensures your basic living expenses of $65,000 per year will always be met through guaranteed sources. If inflation is a concern, you may choose an option within the annuity to increase your annual payout every year. The remaining $683,954 of your savings can be used to supplement your other retirement goals, such as the trips and activities you enjoy.

Stock market fluctuations no longer make you as anxious now that you know your basic living expenses will always be covered. After all, retirement is a time to enjoy the fruits of your labor. An income annuity can help you prudently distribute the money you have saved along the way so you can enjoy a guaranteed income — and peace of mind — for the rest of your life.

The hypothetical example is for illustrative purposes only and is based on a Lifetime Income Annuity, Life-Only policy for a male age 65 years old. Annual income amounts are based on rates in effect as of 1/27/09. Rates are subject to change and payout will vary depending on premium amount, age, gender, the number of lives (one or two) and payment option. Actual amounts a re dependent on interest rates in effect when the policy is issued. Other payment options are also available. Inflation protection option must be elected at time of purchase and the policy owner must be at least 59 ½ at the time of the first payment. Payments for the same premium will be smaller that policies without this feature but will increase each year.

This educational third-party article is being provided as a courtesy by New York Life Insurance Company. For more information on this topic, contact me.

* New York Life's Guaranteed Lifetime Income products are issued by New York Life Insurance and Annuity Corporation, a wholly owned subsidiary of New York Life Insurance Company. Guarantee is based on the claims paying ability of the issuer.

SMRU: 00397565CV