Retirement income scorecard: Immediate annuities
The benefit statement would be required to provide an understandable explanation of the assumptions used to project the account balance to normal retirement age and to convert account balances into annuities or other lifetime income streams. In addition, the benefit statement would contain a disclaimer that projections are only estimates and not guarantees. We believe that lifetime income illustrations and projections should be mandated as part of participants benefit statements, said William R. Charyk, President of IRIC. Given the risks DC plan participants face, including a lack of understanding of how much they need for retirement, how long their funds will need to last and how to spend the funds when they do retire, it is imperative that participants receive this information. To make the disclosures voluntary would be seriously detrimental to them. In its comment letter, IRIC recognizes that the projection of future income streams based on an account balance is inherently uncertain, and believes it would be a disservice to participants if this uncertainty were not explained.
Read the rest here: Retirement Council Recommends Income Illustrations On Pension Statements
I often recommend that you split your retirement savings between annuities and systematic withdrawals, so that you diversify your retirement income and realize the advantages of each method. Please note that the incomes shown above are pre-tax amounts. Federal and state income taxes will have a significant effect on your after-tax income and should be taken into account. The income taxes you pay will vary depending on whether your annuity was purchased with pre-tax investments in traditional IRA or 401(k) accounts, or with after-tax investments. Because only you know which method or combination of methods might work best for you, you should take the time to learn as much as you can about the various methods of generating a retirement paycheck. (A good source to learn more about these methods is my recent book ” Money for Life: Turn Your IRA and 401(k) Into a Lifetime Retirement Paycheck.” ) You’ll thank yourself when you reach your 80s and 90s and your retirement income keeps chugging along.
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Three Great Retirement Income Calculators
Now, the Internet is here to make things simple. You shouldnt rely on a web site to give you all the answers, but you can get closer to a realistic plan using free online tools. There are dozens to choose from, but here are three good ones to try before sitting down with any adviser: 1. BlackRock CoRI What it does: A relatively new entrant, the tool offered by the investment firm BlackRock uses current interest rates, inflation and other real-time data to come up with a daily index that, matched to your age and current retirement plan balance, projects a potential annual income. The upside: No assumptions. This is real data and, thus, a more accurate view of things right now.
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Forget Yield — Dividend Growth Is The Metric That Matters For Retirement Income
Stepping away from REITs, lets take a look at two widely-held blue chips that have more or less tracked the market over the past ten years Johnson & Johnson Johnson & Johnson and Wal-Mart Stores Wal-Mart Stores [Disclosures: Sizemore Capital is long WMT and JNJ.]. I included both of these names for one critical reasonboth paid comparably low dividends back in 2003. Yet despite paying a modest yield at the time, both had been serial dividend raisers for a long timeand still are. Their stock prices have had wild swings over the years, but their dividends have been a source of rock-solid stability. In 2003, Johnson & Johnson and Wal-Mart yielded 1.5% and 0.65% in dividends, respectively. A million dollars invested in each would have paid out $15,296 and $6,538. That stacks up pretty poorly in comparison to the $40,000 you could have received in bond interest by investing in Treasuries. But lets fast forward ten years. Those original million-dollar investments in Johnson & Johnson and Wal-Mart would be paying you $49,244 and $34,144, respectively. Wal-Marts total cash payout is still a little lower than the payout from the Treasury note, though it rose by more than a factor of 5and will likely keep rising at a blistering pace for the foreseeable future. And again, this says nothing about capital gainsor about the reinvestment of dividends, which would have boosted the number of shares you owned and thus your ultimate payout. What lessons can we learn from this? Dividend growth matters far more than current yield. When building an income portfolio, accept a lower payout today in the interest of generating a far bigger payout tomorrow. As in so many other areas of investing, delayed gratification has its rewards. Ill leave you with one final point on inflation and taxes. The first is obvious. Prices rise over Pearland Reverse Mortgage time, and the only way you can avoid getting progressively poorer in retirement is to have an income stream that at least keeps pace with inflation.
Read the rest here: Forget Yield — Dividend Growth Is The Metric That Matters For Retirement Income