Income - WKTV Journal

By Dave Stanley
Integrity Financial Service, LLC

Transitioning from being a saver to a spender means you will be required to not only keep close eye on your investments, spending and taxes, but for also creating your own “paycheck.” (pxhere.com)

“Transitioning from saver to spender can be a disconcerting shift for many seniors. A more systematic approach to spend-down can help.”

Transitioning from being a saver in the accumulation phase to a spender in the spend-down stage of your financial life means you will be required to not only keep a close eye on your investments, spending, and taxes but for also creating your own “paycheck.”

This paycheck might result from living off the interest or dividends from investments for some retirees. Others may prefer more predictable income sources, including annuities and Social Security. These “safe money” assets can help you achieve more peace of mind and perhaps cover your basic living expenses.

Shore up your emergency savings

It’s crucial to take a systematic approach to the problem of how best to spend your money in retirement. You should ensure you have enough money to cover unexpected expense to last at least a year. Suppose you’re worried about having to sell off investments in a bear market to cover emergencies. You might want to discuss rebalancing your portfolio with your advisor, perhaps using more liquid assets.

Include predictable income streams, using annuities and life insurance

Most planners understand, at least on a fundamental level, the power of annuities to help their clients avoid running out of money when they retire. After all, almost every financial services company offers annuity products, and they have done so for many years. Modern retirement research has produced volumes of data-based reports confirming the value of an annuity in a retirement portfolio. Life insurance and annuities may suit retirees who desire the protection of their principal, a predictable stream of lifetime income, long-term care options, or want to leave a legacy to a family member.

Despite the positive data surrounding annuities, many advisors are reluctant to offer them to their clients. This reluctance is often because they believe there will be pushback from clients who have heard negative things about the product through the media or online.

Many popular financial entertainers such as Dave Ramsey have been openly antagonistic about annuities and continue to spread myths and misconceptions to their viewers.

However, continuing changes in retirement plan structure and funding of employer plans have caused more people to dig deeper into safe money and income products to create their pension plans.

Since 1974, the traditional defined benefit (DB) plan, which provided retirees with benefits based on final salary and years of service, has disappeared from the private sector. Replacing it is the direct contribution plan in which employees and their employer regularly contribute to accounts in the employee’s name. Direct contribution plans benefit companies by lowering their expenses. But they place the burden of retirement success squarely on the shoulders of the individual. If you participate in a workplace plan, both longevity risk and performance risk have been shifted to you. Standard direct contribution plans do not guarantee your account will provide lifetime income and running out before you die is always a distinct possibility.

That’s why most retiree portfolios will benefit from strategically designed insurance and annuity products. Strategically designed life insurance is another way to create more predictable, tax-advantaged revenue streams. Properly structured, life insurance offers investments like stocks, bonds, CDs, etc. Annuities relieve the consumer of the need to set aside additional money to offset potential risk and fees for managing the account.

If fear of managing your retirement accounts paralyzes you and causes you stress, simply pass it to a risk bearer, an insurance company. Let the annuity provide you with a safe and secure income.

Dave Stanley is the host of Safe Money Radio WOOD1300 AM, 106.9 FM and a Financial Advisor and Writer at Integrity Financial Service, LLC, Grandville, MI 49418, Telephone 616-719-1979 or Register for Dave’s FREE Newsletter at 888-998-3463 or click this link: Dave Stanley Newsletter – Annuity.com Dave is a member of Syndicated Columnists, a national organization committed to a fully transparent approach to money management.

By Brenda Long, Michigan State University Extension

Getting married? 83 percent of couples fight about money, according to Debt Reduction Services. Making household finances work is one way newlyweds can help make their marriage work. Both should agree on how to coordinate household accounts and debt by having constructive conversations. Even though this is not the most romantic topic, it will contribute to a happier marriage.

Once the honeymoon is over, focus some attention on your shared financial lives. The Building MI Financial Future Financial Toolkit from the Michigan Department of Insurance and Financial Services offers these tips:

Request a free copy of your credit reports at annualcreditreport.com. This information tells you about your use, management and payment history of loans and financial obligations. You might also get credit score estimates from FICO. Then you can objectively analyze the strengths and any weaknesses in the reports, including high debt amounts or discipline about making timely payments.
List all sources of income and expenses. Using all pay stubs, account statements, monthly bills and debt obligations, disclose everything financial to each other. Then you can make a monthly spending plan for handling monthly expenses and establish a debt prevention and/or elimination plan.
Open a joint checking account to pay for household expenses. Pay for all marriage-related bills, including housing, food, necessary clothing, vacation, transportation, cell phones, etc. If neither of you had credit-related problems, both names can be on the account. If one person has poor credit, you may choose to have your account in only one name. Consider automating your household bills payments, plus setting up separate accounts for each of your savings goals.
Decide who is going to pay for what.
- Option 1: Combine incomes and consider all expenses and debts as one.
- Option 2: Assign certain payments to one or the other. This might depend on who had loan obligations prior to the marriage.
- Option 3: Pay ongoing expenses based on the percentage of income contributed.
Discuss the relationship each of you has with money. Is one of you a saver and one a spender? Talk about the potential consequences and agree on a workable solution.
Consider opening a savings account for an “emergency or rainy day fund”. Unplanned emergencies happen. As a couple, you should have a goal about how much is enough for unexpected expenses or emergencies. In addition, the recommendation is to set aside several months of earned income to prepare for an unplanned loss of future income. Decide together on a monthly amount to save which fits into your budget and is sustainable.
- Tip: While many couples choose to pursue a joint checking account, this method may not work for all couples. Whether you have a joint account or separate accounts to pay household expenses, the key is to communicate, have a bill payment plan, and pay bills on time.
Update your beneficiaries. Check any employer-sponsored retirement plan, IRAs, annuities, and life insurance policies to update the beneficiary information.
Take care of your future selves now. Contribute to your employer-sponsored retirement plan and/or IRA. The recommendation is 15 percent of your combined gross pay or the maximum amount allowed by the IRS. This is a great time to talk about your retirement goals that will require financial planning and strategies. Further, decide on a homeownership plan including thinking about if, where and when to buy a home and its cost. Discuss any education and professional training plans.

The first year of marriage typically includes many lifestyle adjustments. Setting goals and planning to save are best practices to help make your financial hopes and dreams come true. Having a spending plan shows your sense of control and willingness to set aside now for the future. Discussing and agreeing on financial adjustments should make your financial lives go smoother. Financial planning takes time, patience, and discipline. Find more information about spending plans, reasons for and ways to save, credit and debt, homeownership, and many other topics at MIMoneyHealth.org.

This article was published by Michigan State University Extension. For more information, visit http://www.msue.msu.edu. To have a digest of information delivered straight to your email inbox, visit http://bit.ly/MSUENews. To contact an expert in your area, visit http://expert.msue.msu.edu, or call 888-MSUE4MI (888-678-3464).