How to build a reliable source of income in retirement

Your years of retirement from Fortune 500 will be as unique as you are. Travel, sports, hobbies … no one will combine these and other activities the same way you will.Your Fortune 500 retirement plan should be just as unique. After all, no one has the exact same retirement benefit plan, tax considerations, and preferences as you. That’s why you need a personalized approach to provide a steady income when your regular paycheck from Fortune 500 stops.

This is where your retirement income plan comes in.Your retirement income plan will help you generate secure income in retirement. In this guide, you’ll discover various aspects that will make up your plan. Our goal is to make planning your retirement from Fortune 500 easy. After reading this guide, you’ll be on the path to confidently enjoying your years of retirement from Fortune 500. But right now, you have some important decisions to make, so it’s a good idea to get some help.

We strongly recommend working with a qualified Financial Planner for expert advice on your retirement income plan.To help you prepare, we have included several “Points to consider” that will start you thinking about your Fortune 500 retirement plan. Be sure to bring this booklet and the completed checklists to your Financial Planner — it will help them put together a plan that’s right for you.As you read this, you may want to jot down some initial estimates in the spaces provided below. Don’t worry about accuracy — at this point, a rough “back of the envelope” estimate is all you need. Your Financial Planner can help you fill in the details later on.

The first step is to determine how much income you will need in your years of retirement from Fortune 500.

1) Calculate your living expenditures

How much will your basic monthly living expenses be in retirement? How much are you likely to spend each month on food, shelter, utilities, transportation, health care, taxes, insurance, and other regular expenses?

2) Make a budget for your daily costs

Think about the “extras” you plan for in retirement. These might include a new car, travel, home renovations, or school tuition. Make a quick estimate of the cost of each and how often it occurs. For instance, do you plan to spend a certain amount on travel each year? Give some thought to how important each item is, and which are your top priorities. Does travel matter more to you than a new car? Take a moment to quickly rank these in the “Priority” column below. Put a 1 beside the item that’s most important to you, a 2 beside the next most important item, and so on. Of course, you don’t need to be precise, and you can always change your mind. This is just meant to give you a starting point.

3) Plan your legacy

As part of your legacy, you may wish to transfer assets to your heirs or make a charitable donation, either in retirement or as part of your Will. In fact, your legacy wishes may be more or less important to you than your retirement lifestyle expenses. Take a moment to rank the importance of your legacy plans.

Your retirement will last many years and, during this time, your expenses will change. They are likely to be higher earlier on as you are actively pursuing your dreams but maybe less during mid-retirement. Later on, you may experience an increase in health-related expenses. Your advisor can work with you and take a long-term view.

While you’re working, your income most likely comes from one place — a paycheck from your Fortune 500 employer. When you retire from Fortune 500, your income could come from at least four different sources:

1. Government retirement benefits, including social security
2. Pension plans
3. Registered Fortune 500 retirement plans such as a 401(k)'s as well as individual retirement accounts (IRA)
4. Personal savings and investments that are held outside registered retirement plans

For any questions regarding your Fortune 500-sponsored retirement accounts, you can contact your Fortune 500 HR department.

1. Government pensions

Government retirement benefits replace about 20% to 40% of the average American's pre-retirement income. Government benefits in the US are a secure source of retirement income that will last your lifetime and increase over time to match the rising cost of goods and services. These programs are a solid foundation that you can top up with income from other sources. The main type of government benefit is social security, which becomes available to most Americans at the age of 62.

• Social security is a monthly benefits program that Americans can claim between ages 62 and 70. Changes to the plan happen often and you should ensure you are up to date on recent changes.

• Social security is only available to those who have paid into the plan while earning income. There is an option to start at age 62 with a reduced monthly payment or at your full retirement age with increased monthly payments.

Quick facts about Social Security Old Age Security To qualify

• You must have US citizenship or legal status in the country

• You must have contributed to social security while working at Fortune 500

Social Security Benefits Depend On

• Your last year of earned income

• When you decide to claim your benefits

• When you were born

Early or late for Social Security?

If you start Social Security before age 67, your payments will be permanently reduced by a set percentage for each month that you take Social Security before age 67. In 2022, the early pension reduction will be around 0.5% per month you take your social security early. This means that if you were born in 1960 or later and you start receiving your Social Security in 2022 at age 62, the amount will be 30% less than if you wait until age 67.

If you start Social Security after age 67, your payments will permanently increase by 0.7% for each month that you delay receiving Social Security after age 67, up to age 70. This means that if you start receiving your Social Security in 2022 at age 70 (36 months after age 67), your payment will be 24% more than it would have been had you taken it at age 67.

You can calculate your potential social security benefits on the social security website here.https://www.ssa.gov/OACT/quickcalc/. This tells you how much your monthly retirement pension could be at age 62-70. It is a rough estimate but takes into account your age, income, and birthday. Be sure to bring your social security estimates to your Financial Planner, who will incorporate this information into your retirement income plan.

2. Employer Pension Plans

In addition to your government benefits, Fortune 500-sponsored pension plans are another potential source of retirement income. For your retirement income plan, it helps to know the type of pension plan (or plans) you belong to and the amount of income you might expect from each plan when you retire from Fortune 500. If you are not sure what kind of Fortune 500 pension plan you have, review your pension documents or contact your Human Resources department for details.

As part of a Fortune 500-sponsored pension plan, you may have the opportunity to transfer your pension assets to another investment vehicle. Or, you may have made this decision in the past and currently own assets in locked-in accounts. Depending on the province, you will have different options for drawing income from these accounts. There are significant differences across employer pension plans and locked-in accounts. Your Financial Planner will help you make sense of it all. Be sure to keep your statements — these important documents will help your advisor put together your retirement income plan.

A Defined Benefit plan pays you a certain monthly income for your remaining life based on your level of earnings, the length of time you worked, and other factors. With a Defined Benefit plan, it’s Fortune 500's responsibility to make sure that there’s enough money set aside to pay your pension when you retire from Fortune 500.

In a Defined Contribution plan, you and Fortune 500 contribute a set amount to the plan, which is usually a percentage of your earnings. These contributions go into an account in your name where you choose how to invest the money. The value of the account will fluctuate based on the performance of the investments you choose. When you retire from Fortune 500, you will generate income by withdrawing assets from the account.

3. Defined Benefit Pensions

You may have accumulated some of your retirement savings in a Fortune 500 401 (k) or IRA. While your savings accounts are used to save for your retirement from Fortune 500, you should also consider how to strategically withdraw your funds in retirement. These accounts offer solid investment options and tax-deferred growth. However, once you reach a certain age you will be forced to withdraw a minimum amount called, a required minimum distribution (RMD). By the end of the year you turn 72, you must begin to withdraw your RMD amount, purchase an annuity or withdraw the funds in a lump sum.

These accounts deliver a regular stream of income based on the minimum annual withdrawal amount and is the most commonly chosen option. Your advisor can help you make the right decision for your personal situation. Ultimately, the amount of retirement income you can expect from your registered Fortune 500 retirement plans depends on how much you contributed, the length of time those contributions have been growing in the plan and how well your investments have done. The specifics will be unique to you, and your Financial Planner will help you integrate your registered retirement plans into your retirement income plan.

If you have any questions about your Fortune 500 pension plan, you can reach out to your Fortune 500 HR Department.

4. Personal savings and investments

On top of government and Fortune 500 registered savings plans, you may have set aside money for your retirement from Fortune 500 in many ways. Outside your qualified retirement accounts, you may hold investments such as:

• GICs and mutual funds

• Stocks, bonds, and other securities

• Employee stock savings plans

• Equity in a business

• Real estate rental property

• Tax-Free Savings Accounts (TFSAs)

Your advisor can help you incorporate these assets into your Fortune 500 retirement plan that’s designed to fit your unique situation and preferences. And although they are often considered separately, it’s worth thinking about your other assets, such as life insurance policies or the equity in your home or cottage, and how they might fit into your retirement income plan, either as a source of income or a part of your legacy plan.

Some sources of retirement income are more certain than others. Income from Social Security and Defined Benefit pension plans is predictable just like a regular paycheck and is paid for the remainder of your life. Other sources of income, like those from a Defined Contribution plan, 401(k), or personal savings, are dependent on various factors such as the type of investment, how long you have invested, how much you withdraw, and when. Your advisor will work with you to help you bridge any gaps between your needs and your income, if necessary.

During your retirement from Fortune 500, you want to make the best use of all your retirement resources. As you work with your advisor to build your retirement income plan, there are a number of key considerations that you will need to think about. Your advisor can help address these considerations by recommending the appropriate strategies that reflect your unique situation and preferences.

Considerations

• Longevity – longer and healthier life spans mean more years to plan income

• Inflation – rising prices will impact your purchasing power in the future

• Health care costs – these expenses are usually higher later on in retirement; you need to plan for them

Strategies to address key considerations

• Sequencing your withdrawals from savings – so your funds will last longer

• Tax planning – so you achieve tax savings, leaving more for your expenses throughout your entire retirement

Longevity

Thanks to improving lifestyles and health care, people are living longer than ever. Today, a healthy 65-year-old has a good chance of living to 81 or beyond. For a healthy couple, both aged 65, there’s a strong possibility that at least one spouse will live past 90 years of age. Of course, it’s impossible to know exactly how long any one person will live in retirement. But it’s certainly prudent to plan for a long retirement. In most cases, your retirement income plan should extend for 30 years or more to cover a wide range of possibilities.

Inflation

Inflation refers to how the cost of goods and services rises over time. For an example of how inflation leads to higher living expenses over time, look at the cost of stamps: In 1943, the cost of mailing a letter in US was 3 cents. In 2016 it cost $1.00 (single stamp standard letter cost) to mail that same letter. Inflation rates change over time. In the 1990s and in the early 2000s, America’s inflation rate was quite low, usually 1% to 3% per year.

In the early 1980s, by comparison, inflation was higher than 10% per year. Certainly, planning for inflation must be part of your retirement income plan. Based on long-term historical averages, 3% is generally considered a reasonable estimate for future inflation rates. With annual inflation of 3%, the average price of goods and services doubles every 24 years. To manage this, your advisor can help you identify investments with good long-term growth potential to help you outpace inflation.

The Consumer Price Index (CPI) is the most commonly used gauge for measuring inflation. It tracks price changes for a wide range of items including food, shelter, energy, health care, education, and clothing.

Your health is your most valuable asset. Unfortunately, the eventual diminishing of health is a reality that everyone should plan for. At some stage in your life, you may suffer from a critical illness (such as a stroke or heart attack) or you may simply reach a point where you need ongoing care either at your home or in a long-term care facility. It’s important to plan for increased costs related to health care as you age.

There are ways to protect yourself, your spouse and your family from the added costs associated with these situations. A growing number of critical illness and long-term care insurance policies are available for this purpose, and you may want to discuss with your advisor whether the cost of these solutions makes sense for you.

During retirement, the impact of longevity, inflation and health care costs will need to be taken into account. Your advisor will work with you to build a retirement income plan that considers your entire financial situation and employs a variety of financial planning strategies to maximize the value of your retirement resources in a manner that addresses these key considerations. An effective retirement income plan will always take into account the sequencing of withdrawals as well as tax planning aspects.

When taking withdrawals in retirement, the sequence of returns has a dramatic effect on your portfolio. As the table above shows, Portfolio A experienced poor returns early in retirement and is worth $6,656 less after five years than Portfolio B, which had strong early returns.

Your retirement income plan should be as unique as you are. With the guidance of a qualified Financial Planner, your retirement income plan should accurately reflect your situation today and your personal plans for the future. Your advisor will start by helping you create a realistic forecast of your retirement needs. You might also need their help to put together a complete list of your retirement income sources and personal investments.

Next, your advisor will create a plan to generate the most tax-efficient income to meet your needs while keeping your legacy plans in mind.After your initial plan is in place, it’s important to review your plan on an annual basis so that you can make adjustments as your priorities or circumstances change.If you haven’t done so already, you may want to go back and quickly fill in the “Points to consider” in this guide. Feel free to leave any areas blank if you don’t know the answer.

The Retirement Group is a nation-wide group of financial advisors who work together as a team.

We focus entirely on retirement planning and the design of retirement portfolios for transitioning corporate employees. Each representative of the group has been hand selected by The Retirement Group in select cities of the United States. Each advisor was selected based on their pension expertise, experience in financial planning, and portfolio construction knowledge.

TRG takes a teamwork approach in providing the best possible solutions for our clients’ concerns. The Team has a conservative investment philosophy and diversifies client portfolios with laddered bonds, CDs, mutual funds, ETFs, Annuities, Stocks and other investments to help achieve their goals. The team addresses Retirement, Pension, Tax, Asset Allocation, Estate, and Elder Care issues. This document utilizes various research tools and techniques.

A variety of assumptions and judgmental elements are inevitably inherent in any attempt to estimate future results and, consequently, such results should be viewed as tentative estimations. Changes in the law, investment climate, interest rates, and personal circumstances will have profound effects on both the accuracy of our estimations and the suitability of our recommendations. The need for ongoing sensitivity to change and for constant re-examination and alteration of the plan is thus apparent.

Therefore, we encourage you to have your plan updated a few months before your potential retirement date as well as an annual review. It should be emphasized that neither The Retirement Group, LLC nor any of its employees can engage in the practice of law or accounting and that nothing in this document should be taken as an effort to do so. We look forward to working with tax and/or legal professionals you may select to discuss the relevant ramifications of our recommendations.

Throughout your retirement years we will continue to update you on issues affecting your retirement through our complimentary and proprietary newsletters, workshops and regular updates. You may always reach us at (800) 900-5867.

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