How to make retirement income reappear

By the time you go to bed this evening, some 10,000 baby boomers will have turned 65 today. Many of them will have already vanished from the workforce. And many more will soon pull the same disappearing act.

How prepared for the financial pressures of post-work life — a period that may extend decades — are these retirees? How prepared are you?

The nearer to retirement our nation’s baby boom generation grows, the clearer the reality becomes. Boomers must confront a worry they knew was coming but for which they may not have adequately planned: disappearing income. As employer paychecks fade from view, a gap between income and expenses often emerges. And the shortfall makes for a scary sight.

Relying solely on Social Security and traditional pensions seems increasingly tricky. As recent retirees can attest, Social Security cost-of-living adjustments have faded in recent years. Questions regarding the program’s long-term viability persist. In addition, the availability of traditional employer-sponsored defined-benefit pension plans continues to shrink. As a result, the payout from these sources may fail to completely cover a retiree’s primary expenses. For the balance, there may be no choice but to tap personal assets.

If retirement lasted only a few years, such a drawdown might suffice. But the reality is people now live much longer. The result? Decades of post-employment exposure to such wealth-depleting forces as market volatility, higher health care costs and increased inflation. Those forces drain retiree resources. And they can raise the odds that retirement income will lag farther and farther behind retirement spending.

This poses a challenge for clients but presents an opportunity for financial professionals. Retirees, more than ever, seek assurance that their reduced income stream during retirement will satisfy their spending needs. So when the income level enjoyed during their working years wanes, how do you help conjure solutions that can make some of it reappear in retirement?

Finding the invisible income

It is possible for income that seemingly isn’t there to emerge into view. Start the process by taking a comprehensive look at your client’s monthly cash flow. Focus on the outlays your client considers primary. Then add up their current guaranteed income stream (i.e., government benefits, employer pensions, etc.). Next, compare the two totals to discover if a shortfall exists. And finally, consider financial products with the potential to enhance and possibly even guarantee the income outcome.

Consider an example. Say a retired couple comes to you for help. Al, 65, and Ann, 62, tell you, “The income we had before retirement just isn’t there anymore. We need more to meet our needs.”

Doing a little fact finding, you define their dilemma. You see they have $400,000 in invested assets. And their cash flow shows essential expenses of $3,500 but guaranteed income of only $3,000. So their monthly shortfall is $500.

Al says they plan to draw down assets from other investments to pay for primary expenses. But Ann worries doing so may erode their nest egg at an unreasonable rate. Addressing this gap doesn’t mean they must cut out the costs that create their preferred standard of living. The money they need is likely still there, but to Al and Ann it may be invisible.