James K. Ault – Sooner Retirement

Filling in The Gaps in Your Retirement Income

Tue, 06 Dec 2022 20:08:00 GMT

A retirement income gap represents a shortfall between the income you will need to pay your essential (and possibly some non-essential) expenses in retirement and the amount that you actually have coming in.

While you may be able to sustain this pattern for some period of time, you will eventually run out of money. Then what? So, before it is too late, it is critical that you implement a strategy for filling in the gaps in your retirement income.

Steps for Bridging a Retirement Income Gap

There are several steps involved in determining whether or not you may have an income gap in retirement – and if you will, strategies for closing it. These include:

Estimating your expenses
Determining where income will be generated
Developing ways to increase income, reduce costs – or both

Determining Your Expenses in Retirement

Similar to your pre-retirement years, it is important to draw up a budget for estimating your expenses in retirement. While some costs may go down after you leave the working world, it is possible that others will increase (such as travel, entertainment, and fun).

When creating your retirement budget, you should also separate out essential and non-essential costs. For instance, some common essential living expenses can include:

Housing
Utilities
Food
Healthcare
Toiletries

It is also important to keep in mind that, due to inflation, your expenses will likely increase over time.

Where Will Your Retirement Income Come From?

Although you may receive income from just one source – such as a job or a business – during your working years, it is possible that you could have several generators of retirement income. These could include one or more of the following:

Social Security
Employer-sponsored defined benefit pension plan
Reverse mortgage
Rental income
Interest and/or dividends from savings or investments
Annuity

Filling in the Difference

When it appears that you will have an income shortfall, there are some strategies that you could use. These may include one or more of the following options:

Working part-time. Income from a part-time job may be enough to fill in what you need in order to maintain your intended lifestyle.
Reducing your expenses. You may find that there are some items or services that you’re paying for, but that you really don’t need. For instance, is there a gym or club membership that you’re paying for but never use? Do you really need all of the cable TV channels in your plan? Could you shop for a better rate on your car and homeowner’s insurance coverage? All of these savings can really add up.
Delaying your retirement date. If you delay your retirement date, it could give you more time to save and invest for the future. In addition, if your employer offers a retirement plan, you may be able to add more to this, as well.
Waiting to claim Social Security retirement income benefits. The longer you wait to file your Social Security, the higher your benefit will be. For instance, each year that you wait between your full retirement age and your filing date, you could give yourself an 8% “raise.” (Note that the 8% increase stops when you reach age 70).
Drawing income from non-taxable sources. By taking tax-free income (such as that from a Roth IRA), it can reduce the amount of income that you are taxed on. With lower taxes comes more net spendable cash flow.
Purchase an annuity. Annuities are designed for paying out a regular income stream for either a pre-determined time – such as 10 or 20 years – or for the remainder of your lifetime. If you opt for the lifetime income, you can rely on a steady stream of incoming cash flow, regardless of whether you need it for a few years or several decades!

Will You Have to Reduce Your Lifestyle in Retirement?

It is best to determine whether or not you will have an income gap sooner rather than later. That way, you can come up with strategies for closing it. Before you commit to any plan, though, it is recommended that you first talk with a retirement income specialist who can guide you along the way.

The post Filling in The Gaps in Your Retirement Income appeared first on James K. Ault – Sooner Retirement .

Why Consider a Reverse Rollover?

Tue, 29 Nov 2022 20:53:00 GMT

If you have ever left an employer where you had a retirement savings account, you may have “rolled” those funds into a personal IRA. Doing so can allow you to take control over your money, as well as open up a much wider array of investment opportunities.

But what about doing the opposite?

Many investors don’t realize that there is a technique called a “reverse rollover” that can offer convenience in your overall financial planning – especially if you currently have multiple retirement savings accounts.

But even so, it is critical that you understand how this process works, and that you are aware of both the benefits and the drawbacks.

What is a Reverse Rollover?

A reverse rollover occurs when you transfer retirement assets from an IRA (Individual Retirement Account) that you manage on your own to your current employer’s 401(k) plan. Although this is not a common practice, it can make managing your retirement money easier and more convenient for investors.

While reverse rollovers aren’t suitable for everyone, there may be some instances when this strategy could be considered, such as if you:

Prefer convenience over control of your retirement assets.
Want to delay required minimum distributions (in certain cases).
Want the option to borrow money from your retirement funds without triggering certain penalties and taxes.
Wish to access money before age 59 ½, but don’t want to incur an early withdrawal penalty.
Want protection from lawsuits, creditors, and bankruptcy.

Reverse rollovers can make managing your money more convenient because the bulk of what you have can all be in just one place. This can also allow you to purchase larger positions (i.e., place more money into each individual investment).

If you are still working when you reach age 72, you can delay taking required minimum distributions from your 401(k). This is not so with funds that you hold in a personal, traditional IRA account.

You also have the opportunity to borrow money from your 401(k) plan without having to pay the taxes and penalties that could be associated with taking withdrawals from a personal Individual Retirement Account.

If you opt to retire at age 55, you could forgo the 10% early withdrawal penalty you would incur by taking withdrawals from an IRA account prior to age 59 ½. In this case, however, you will have to meet other qualifications.

Moving money into your current employer’s 401(k) plan can also help you to shield these funds from creditors, as well as from lawsuits and even potential bankruptcy. This is because federal law protects 401(k) plan assets in the event of these types of legal issues.

Items to Consider Before Moving Any Funds

Even given the many benefits of reverse rollovers, there are some potential drawbacks to consider, such as:

Employer-sponsored 401(k) plans typically have limited choices in terms of investment vehicles. So, you may not be able to diversify as well as you would like.
401(k) and other employer retirement plans can also have high fees. This, in turn, can end up reducing your overall return.
You can also have much more control over personal IRA funds than those in an employer-sponsored retirement plan. For instance, you can invest the money the way you want to. This can lead to greater diversification.

It is also important to note that you can only conduct reverse rollovers with traditional IRA funds. So, if you have a Roth IRA account, this money will not qualify.

Should You Consider a Reverse Rollover as Part of Your Retirement Planning?

Because everyone’s objectives, risk tolerance, and time frame until retirement are different, it is important that you have a plan that is as unique as you are. Talking with a retirement income specialist is a great place to start.

Source: How to Roll Over an IRA to a 401(k). By Patrick Villanova. September 9, 2022. SmartAsset.

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What higher interest rates could mean for annuities

Tue, 22 Nov 2022 20:30:00 GMT

As interest rates have continued to rise, they are having a tremendous impact on home mortgages and fixed income investments. In the case of the former, rising rates can mean bigger house payments. In the latter, though, you could generate more growth and/or income.

But what could higher interest rates mean for annuities?

The answer to that really depends on the actual annuity you own. So, it is important that you understand how annuities work and what they can (and cannot) do for you before you purchase one.

The Effect of Higher Interest Rates on Annuities

Different annuities can be affected in different ways when interest rates rise and fall. For instance, fixed annuities – which are insurance contracts that pay out a pre-set guaranteed interest rate – are typically impacted the most.

In this case, if you plan to use the annuity as a retirement income-generating vehicle, you could receive a higher payout. This, in turn, means that you could have more cash flow to use for your essential (and possibly also non-essential) expenses in the future.

Fixed indexed annuities (FIAs) are a type of fixed annuity. While there is a fixed account option available with FIAs, these annuities primarily base their return on the performance of one or more underlying market indexes, such as the S&P 500.

If the index performs well in a given time period (such as a contract month or year), the annuity is credited with a positive return, oftentimes up to a stated maximum. In return for this limited upside, though, if the underlying index(es) perform poorly, there is generally no loss incurred by the account.

Annuities versus Bonds

With rising interest rates affecting both bonds and fixed annuities, it may be difficult to determine which of these financial vehicles is best for you. In doing so, both provide principal protection, and each can provide you with regular income payments.

However, there are several areas where a fixed annuity may still come out on top. These can include:

Ongoing payments for life
Tax-deferred growth

While bonds may pay a steady stream of interest income, eventually these investments mature. At that time, you may have to reinvest in a new bond if you wish to keep income flowing in. But if rates have dropped in the future, you run the risk of taking a “pay cut.”

On the other hand, if you choose the lifetime income option with an annuity, you can count on a regular income stream to continue for the remainder of your lifetime – regardless of how long that may be.

In addition, deferred annuities (i.e., annuities that do not pay out income right away) allow tax-deferred growth. This means that you don’t have to pay tax on the gains until the time of withdrawal – which could be many years in the future.

Over time, tax-deferred growth can truly accelerate because you can generate interest on the principal, as well as on the previous growth, and on the funds that would have otherwise been paid in taxes.

Is an Annuity Right for You in a Rising Interest Rate Environment?

There are many factors that you should take into consideration before you purchase an annuity. These can include your age, risk tolerance, and time frame until retirement. In addition, if you are leaning towards an annuity to supplement your retirement income, you should also consider other income sources that you may have, such as Social Security and/or an employer-sponsored pension plan.

There are many different types of annuities available in the marketplace today, and they can often have many “moving parts.” With that in mind, it can help if you discuss your options with a specialist in retirement income planning.

The post What higher interest rates could mean for annuities appeared first on James K. Ault – Sooner Retirement .

How much income will you receive from an annuity?

Tue, 15 Nov 2022 19:10:00 GMT

There are many different types of annuities available in the marketplace today. These include immediate and deferred, as well as fixed, indexed, and variable. When the payments begin, and how the return is calculated, can depend on these variations.

For instance, immediate annuities start to pay out income right away (or within 12 months of purchase). A deferred annuity, on the other hand, can pay income, too. But it doesn’t start until a time in the future.

Immediate versus Deferred Annuities

How much income you receive from an annuity can depend on the annuity type, as well as other criteria such as the length of the income payment term, and the interest rates offered by the insurance company.

For example, fixed deferred annuities offer a stated rate of return that is set by the insurance company, regardless of what happens in the stock market. While the return on fixed annuities is oftentimes low, these types of annuities keep your principal protected.

Because of this protection, these particular financial vehicles are oftentimes attractive to those investors and retirees who are seeking safety and predictability, as well as certain types of guarantees.

Fixed-indexed annuities are a type of fixed annuity. However, these annuities base their return on the performance of one or more market indexes, such as the S&P 500 or the Dow Jones Industrial Average (DJIA).

When the performance of the underlying index during a given contract year is positive, the fixed indexed annuity will be credited with a positive return, usually up to a certain limit, or “cap.”

But, if the performance is negative, the annuity will not lose value. Rather, it is credited with a guaranteed minimum “floor” amount, which can usually range from 0% to 2%. So, even if the underlying index suffers a substantial loss, the principal in the annuity is protected. Because of that, fixed-indexed annuities are oftentimes said to offer a “best of both worlds” scenario.

Variable deferred annuities offer the opportunity to generate a higher return than a fixed or fixed-indexed annuity. That is because the funds in a variable annuity have their return tied to the performance of underlying equities such as mutual funds.

In this case, there is oftentimes no upper limit – or “cap” – that is imposed on the gain (like there is with a fixed-indexed annuity). So, there is the potential for a significant amount of growth in the variable annuity contract.

However, there is also the risk of loss if the underlying investments perform poorly. Therefore, variable annuities may not be a good option for those who are seeking protection of principal and/or for retirees who are looking for specific income guarantees, like the ones offered on fixed and fixed-indexed annuities.

It is also important to note that if you own an annuity in a retirement plan, such as an IRA, it is considered a qualified annuity, whereas one that you have in a personal, non-retirement account, is known as a non-qualified annuity.

How much income you receive from an annuity can depend on the annuity type, as well as other criteria such as the length of the income payment term, and the interest rates offered by the insurance company.

For example, fixed deferred annuities offer a stated rate of return that is set by the insurance company, regardless of what happens in the stock market. While the return on fixed annuities is oftentimes low, these types of annuities keep your principal protected.

Because of this protection, these particular financial vehicles are oftentimes attractive to those investors and retirees who are seeking safety and predictability, as well as certain types of guarantees.

Fixed-indexed annuities are a type of fixed annuity. However, these annuities base their return on the performance of one or more market indexes, such as the S&P 500 or the Dow Jones Industrial Average (DJIA).

When the performance of the underlying index during a given contract year is positive, the fixed indexed annuity will be credited with a positive return, usually up to a certain limit, or “cap.”

But, if the performance is negative, the annuity will not lose value. Rather, it is credited with a guaranteed minimum “floor” amount, which can usually range from 0% to 2%. So, even if the underlying index suffers a substantial loss, the principal in the annuity is protected. Because of that, fixed-indexed annuities are oftentimes said to offer a “best of both worlds” scenario.

Variable deferred annuities offer the opportunity to generate a higher return than a fixed or fixed-indexed annuity. That is because the funds in a variable annuity have their return tied to the performance of underlying equities such as mutual funds.

In this case, there is oftentimes no upper limit – or “cap” – that is imposed on the gain (like there is with a fixed-indexed annuity). So, there is the potential for a significant amount of growth in the variable annuity contract.

However, there is also the risk of loss if the underlying investments perform poorly. Therefore, variable annuities may not be a good option for those who are seeking protection of principal and/or for retirees who are looking for specific income guarantees, like the ones offered on fixed and fixed-indexed annuities.

It is also important to note that if you own an annuity in a retirement plan, such as an IRA, it is considered a qualified annuity, whereas one that you have in a personal, non-retirement account, is known as a non-qualified annuity.

How is Annuity Income Determined?

With an annuity, the income payments are calculated using several different factors when you go to turn on the income stream. These include the:

Number of payments or length of payment term. In this case, a shorter payment period, such as 10 years, would pay a higher dollar amount on each individual payment than one with a 20-year payout term. The lifetime income option typically pays the lowest dollar amount per payment. However, this alternative can ensure that income will arrive for as long as you need it.
Interest rate. The insurance company determines the interest rate on annuity payments. A lower rate will result in a lower dollar amount of payment.
Amount of principal. The amount of money in the account when you annuitize (i.e., convert the annuity to a payment stream) is another key factor for determining how much your annuity income payments will be. In this instance, the larger the income “base,” the higher the individual income payments will be.

While fixed and fixed indexed annuities can provide you with the same dollar amount of payment throughout the payment period, the amount of income from a variable annuity could differ from one period to another.

Also, many annuities allow you to add inflation protection whereby the amount of the income payment increases over time. In this case, though, the initial dollar amount may start out lower than it would with the fixed payment option.

With that in mind – and because not all annuities are the same – it is recommended that you discuss your financial objectives, risk tolerance, time frame, and other factors with an annuity specialist before making a long-term commitment.

The post How much income will you receive from an annuity? appeared first on James K. Ault – Sooner Retirement .

Just how high could income taxes rise?

Tue, 18 Oct 2022 17:24:00 GMT

Nobody enjoys paying taxes. This is one of the biggest reasons why pre-tax contributions and tax-deferred growth make traditional retirement accounts so appealing – at least during your working years.

But at some point, that money will be taxable upon withdrawal. With that in mind, it is important for you to have a plan in place that accounts for the possible taxes you may have to pay – because nobody knows just how high income taxes could rise down the road!

A Look Back at Income Taxes in the Past

Prior to 1913, revenue generated by the U.S. federal government was done so primarily via taxes on goods, such as the imposing of tariffs on imported products and excise taxes on other items like whiskey. However, the 16th Amendment to the U.S. Constitution established the right of Congress to impose a Federal income tax .

That year, the top Federal income tax rate was just a mere 7%. However, over time, this rate has vacillated, and it has been as high as 94%, with forty-nine of the past 109 years seeing a top rate of 70% or more.

The Top Federal Income Tax Rates From 1913 Through 2022

Source: Inside Gov

How would rates that high impact your retirement lifestyle?

Currently (in 2022), the highest federal income tax rate is sitting at just 37% (based on your income and tax filing status) – which in comparison to other years is considered quite low. But after the year 2025 – or possibly even sooner – be prepared for rates to rise… and where they’ll stop, nobody really knows.

Income Tax Rates and Brackets (in 2022)

Source: Internal Revenue Service

While some of the funds that you generate in retirement may be taxed as income, it is possible that others could be subject to a different type of tax – as well as a different rate. This refers to capital gains taxes.

Capital gains can be considered long- or short-term. Long-term capital gains are the profits on investments that have been held for more than one year, while short-term capital gains are incurred on investments held for one year or less.

Depending on the amount of income that you generate, as well as your tax filing status, long-term capital gains tax rates (in 2022) are 0%, 15%, or 20%, whereas short-term capital gains taxes correspond with your ordinary income tax rate.

Long-Term Capital Gains Tax Rates and Brackets (in 2022)

Source: taxfoundation.org/2022-tax-brackets/

Strategies for Paying Less Income Tax in Retirement

Given the possible avenues for taxation of your income and withdrawals in retirement, there are some potential strategies that could ease the burden. Some of these may include the following:

Take advantage of the Roth IRA (where withdrawals come out tax-free).
Time your Social Security income so that the benefits are not taxable (up to 85% of Social Security benefits could be taxable, based on when you file and how much other income you generate).
Coordinate your taxable income or withdrawals from traditional IRAs and/or retirement plans with non-taxable funds from tax-free sources.
Consider using tax-free loans from cash value life insurance to supplement your other retirement income sources.

Do You Have the Right Retirement Income Plan in Place?

Reducing – or even eliminating – taxes on your retirement income and withdrawals may be possible, provided that you have a good solid strategy in place. However, not properly setting up your plan could end up costing you. That is why working with a retirement income specialist is highly recommended. Click here to schedule your free consultation!

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Keeping Your Retirement Income on Pace With Future Inflation

Tue, 11 Oct 2022 19:29:00 GMT

Keeping your retirement income on pace with future inflation can be a significant piece to your overall financial future. Without a strategy in place, you may find your purchasing power diminishing over time – and in some cases, it could be necessary to make tough decisions regarding what, and what not, to purchase.

Forgoing a trip to Europe might be difficult – especially if it has been a long-term dream. But having to determine whether to spend your recourses on food OR healthcare – but not both – can be even more difficult. That’s why it is essential to know that your retirement income will rise over time.

What Inflation Looks Like

Inflation is defined as the “decline in purchasing power over a period of time.” This relates to the increase of an average price level of goods and services, and in turn, it means that a unit of currency will effectively buy less than it did in the past.

Typically, these rising prices occur gradually, so it can be difficult to notice just how much inflation is impacting your spending power on a year to year basis. But when it is tracked over a longer time period, it becomes easier to see just how much of an impact it makes.

Looking at it another way, if your income does not go up, you will be able to purchase less over a period of time. As an example, if you had 9 cents to spend:

In 1916, it would purchase a quart of milk
In 1966, it would purchase just one small glass of milk
In 2017, it would only be able to purchase 7 tablespoons of milk

Many people do not consider the effect that inflation can have on their retirement income. But regardless of whether you’re working or retired, the price of goods and services that you need and want will still typically continue to rise. Therefore, your income needs to rise, too!

It is important to keep in mind that, just like the stock market, “averages” are just exactly that – averages. This means that year over year, inflation could be significantly higher (or lower), so this needs to also be considered. (Notice in the chart below the difference between just 2020 average prices as compared to average prices in mid-2022).

Average Prices in 2000 versus 2022

Sources: https://thepeoplehistory.com/2000.html / United States Bureau of Labor Statistics

Keeping Your Income Where You Need It to Be

Regardless of how much money you have saved, a secure retirement has more to do with the generation of income that lasts as long as you need it to. One way to do this is through an annuity.

Annuities can pay out income for either a pre-set time frame, such as 10 or 20 years, or for the remainder of your lifetime, no matter how long that is. These financial vehicles can also be designed to increase the amount of income that you receive over time. For instance, cost of living riders adjust the dollar amount of cash flow that is paid out by an annuity each year.

There are also inflation-protected annuities available in the marketplace. These annuities have their payments indexed to the rate of inflation in the economy. It is important to note that these annuities may have an upper limit, or “cap” on the amount of increase they provide on an annual basis.

Other options for increasing income in retirement could include:

Increasing the amount or percentage of portfolio drawdown(s)
Social Security cost of living adjustments

Will You Have a Secure – and Rising – Income in the Future?

Because creating an income plan that not only includes a lifetime stream of cash flow, but also one that rises over time, can require many “moving parts,” it is recommended that you discuss your situation and objectives with a retirement income specialist .

The post Keeping Your Retirement Income on Pace With Future Inflation appeared first on James K. Ault – Sooner Retirement .

Addressing The 3 Most Pressing Retirement Concerns

Tue, 04 Oct 2022 16:19:00 GMT

Retirement planning can pose a number of challenges. But even if you have successfully reached retirement, there are new hurdles that you may face… three in particular that can have devastating consequences if they are not planned for.

With that in mind, addressing the 3 most pressing retirement concerns should be a key component of your overall financial planning.

What exactly are these major financial concerns that retirees may face?

According to some experts, they include:

High – and rising – health care costs
Inflation / reduced purchasing power
Running out of money before “running out of time”

High and Rising Health Care Costs

According to a recent study , an average retired couple age 65 in 2022 may need to have approximately $315,000 saved (after tax, and in today’s dollars) in order to cover health care expenses in retirement… and this figure doesn’t include the cost of a potential long-term care need.

After turning age 65, there is a 70% chance of needing at least some type of long-term care services at some point during your remaining lifetime. Based on the Genworth 2021 Cost of Care Survey , the monthly median cost of just one month in a private room in a skilled nursing home facility in 2021 was over $9,000. A semi-private room was as close to $8,000 per month, and even home health care services were in the rate of $5,000 monthly.

Even with a significant amount of money in your portfolio, it may not take long to deplete the assets you have if you and/or your spouse need long-term care… even for a short period of time.

One way to hedge this risk is to ensure that you have proper health insurance, as well as long-term care coverage. Also having an annuity in place that offers an ongoing income stream can help to provide you with additional financial cushion.

Inflation / Reduced Purchasing Power

Over time, prices of the goods and services that you need tend to go up. So, in order to maintain your current standard of living, you will need to keep your purchasing power on pace. Using an average annual inflation rate of just 3.2%, your income would have to double in 20 years in order for you to keep up your present lifestyle.

One way to accomplish this is to increase the percentage of funds you access from your portfolio. This, however, can risk depletion of your portfolio more quickly. Therefore, other less risky techniques could include the purchase of an annuity that offers an income stream with an inflation rider on it.

Depending on the annuity, the dollar amount of your income could go up by a certain percentage each year. This amount may be based on the prior year’s CPI or some other formula.

Running Out of Money Before “Running Out of Time”

With people living longer now, it is not uncommon to spend 20 or more years in retirement. While this is good news, it can also present some challenges to your retirement income plan as cash flow must last for a longer period of time.

One way to ensure that income will continue to flow in, year after year – regardless of what happens in the stock market or even in the economy overall – is to purchase an annuity and choose the lifetime income option. With this financial vehicle in place, money will continue for as long as you live, no matter how long that may be.

Do You Have a Plan in Place to Address These Potentially Devastating Financial Concerns?

While annuities can provide solutions for various financial challenges in retirement, it is important to keep in mind that not all annuities are exactly the same. Therefore, talking over your specific situation and goals with an annuity specialist is recommended.

The post Addressing The 3 Most Pressing Retirement Concerns appeared first on James K. Ault – Sooner Retirement .

3 key steps to converting savings into a lifetime retirement income stream

Wed, 20 Jul 2022 20:11:00 GMT

Until just a few decades ago, many retirees could count on retirement income from three primary sources. These included an employer-sponsored defined benefit pension plan, Social Security, and personal savings or investments.

Today, however, many companies have done away with the traditional “pension” plan, replacing it with defined contribution plans such as the 401(k). But, while these options can offer some nice tax-related incentives now, they do not guarantee income in the future.

Because of that, millions of retirees every year must decide how to convert their savings into a reliable income stream that will last for the remainder of their lives – which could be 20 or more years, given longer life expectancy now.

The good news is that, even with an uncertain stock market and a low interest rate environment, there are some steps that you can take to convert the money you have saved into a stream of lifetime retirement income.

How to Turn Savings into Income in Retirement

Saving money for “the future” is just part of what you need to do in order to ensure an enjoyable retirement. Another key component is making sure that you have enough money coming in each month (or year) to pay for your essential living expenses, like housing, healthcare, and food (and possibly also some non-essentials like travel and entertainment).

The process of doing so successfully entails three steps:

Estimating future expenses
Determining retirement income sources
Filling in any income “gaps”

Estimating Future Expenses

The first step to converting savings to income is to come up with an estimate of how much cash flow you will need in retirement. Although you may not be able to determine an exact dollar figure, you can obtain a “budget” for yourself by going through your essential living costs, and then adding in any of the “extras,” like vacations, the purchase of a second home, etc.

It is important to keep in mind that some of your expenses may go down in retirement, but others – such as healthcare – are likely to rise. In addition, remember to factor in taxes, based on where you generate your income and withdrawals from.

Determining Retirement Income Sources

Once you have an idea of what your expenses may be in retirement, you should then determine all of the sources from which you will generate income. Here, for instance, you may qualify for Social Security Retirement benefits. You may also bring in cash flow from one or more of the following sources:

Reverse mortgage
Interest from savings or investments
Dividends
Rental property

Filling in Any Income “Gaps”

After getting an idea of your future income and expenses, determine whether there are any “gaps.” In other words, will you have more expenses going out than cash flow coming in? If this is the case, then you will have to fill these in.

One way to do so is with a fixed or fixed indexed annuity. These flexible financial vehicles can pay out a steady, ongoing stream of income for a known period of time – such as ten or twenty years – or they can even continue generating regular income for the remainder of your lifetime, no matter how long that may be.

With that in mind, not only can annuities provide you with a way to make up the difference between your income and outgo in retirement, but they can also offer you an “income floor,” or a known amount of cash coming in that you know you can count on – even if the stock market falls or interest rates become lower.

Annuities can be funded in a number of different ways. But one common strategy that many retirees use is “rolling” funds from IRAs (Individual Retirement Accounts) and/or employer-sponsored retirement accounts into the annuity.

Then, depending on the type of annuity you purchase, your income can begin to pay out right away (or within the next 12 months), or alternatively it can start at a time in the future that you decide upon.

Will You Be Able to Count on Income for the Rest of Your Life?

As you go through your potential income and expenses for the future, will you be able to count on a lifetime stream of guaranteed income in retirement?

If not, an annuity may be right for you.

But, before you make a long-term commitment to this – or any – financial vehicle, it can help to discuss your situation and objectives with a specialist. At Sooner Retirement, our mission is on educating consumers (and financial professionals) on how annuities work, and why they could be a good fit for income needs in retirement.

To set up a time to chat with an Sooner Retirement retirement income planning specialist, feel free to contact us by phone at (918) 719-1848 , or you can send us an email by going to our secure online contact form . We look forward to hearing from you.

The post 3 key steps to converting savings into a lifetime retirement income stream appeared first on James K. Ault – Sooner Retirement .

What to do with your 401(k) when you retire?

Tue, 12 Jul 2022 20:17:00 GMT

Knowing that you can count on a set amount of income to arrive throughout your retirement is a key factor in how – and how well – you will live. In many cases, the largest amount of savings that a retiree has is the funds inside of an employer-sponsored retirement program like a 401(k) – which can be converted into an ongoing cash flow stream. With that in mind, it’s important to know what to do with your 401(k) when you retire.

How to Turn Your Employer-Sponsored Savings Into Lifetime Income in Retirement

While you may be able to count on income from Social Security when you retire, this source is estimated to only replace about 40% of pre-retirement earnings for an average wage earner. So, without an employer pension plan to rely on, where will the remainder of your future income come from?

One option is through an annuity – and that annuity may be funded using some or all of the funds that you have in your 401(k) or other similar retirement savings plan.

Many retirees will “roll” their 401(k) funds directly into an annuity, where they can then start receiving income right away (from an immediate annuity), or income that starts at a time in the future (via a deferred annuity).

If you opt to roll your retirement savings over to an annuity, there are two options that you may have. These include a direct rollover or an indirect rollover – and it is important to know the difference between the two, because the way you move forward could have tax-related consequences, as well as potential penalties.

Direct versus Indirect 401(k) Rollover to an Annuity

With a direct rollover, you move the money that you have in your retirement account directly into an annuity. In this case, you never actually take receipt of the funds. Nor does it require you to first “cash out” of the retirement account and then re-invest the money in an annuity. This, in turn, can help you to avoid tax implications and possible penalties.

On the other hand, with an indirect roll over, you move money from a qualified plan, such as a 401(k), to a bank. Then, the money is again moved, this time going from the bank into the annuity that you choose.

Note that if you have a personal IRA (Individual Retirement Account), these funds may also be rolled over into an annuity and in turn, be converted into a stream of income for you when you retire.

Having funds in an annuity can allow you to choose an income stream for a pre-selected period of time, such as 10 or 20 years. Or, you could instead choose to obtain lifetime income from the annuity that will continue to flow in on a regular basis for the remainder of your life, no matter how long that may be!

Are You Ready to Discover the Retirement Income Options that Can Make Your Financial Future Secure?

Rolling over money from a 401(k) plan can have a lot of “moving parts” involved. So, in order to ensure that the process moves along smoothly, it is recommended that you first discuss your options with an annuity specialist. A professional who focuses on annuities can also help you with determining which annuity (if any) is right for you, based on your objectives, risk tolerance, and retirement time frame.

At Sooner Retirement, our primary mission is to educate consumers on how annuities work, and why they may fit into an overall retirement portfolio. So, if you would like to set up a time to chat with an annuity specialist, please feel free to contact us by phone at (918) 719-1848 or by email through our secure online form . We look forward to assisting you with setting up an income for life in retirement.

The post What to do with your 401(k) when you retire? appeared first on James K. Ault – Sooner Retirement .

What to consider before a Roth IRA conversion

Wed, 06 Jul 2022 23:51:00 GMT

Roth IRA accounts can offer you a number of benefits – including tax-free income in retirement. This can put you at a significant advantage, given that tax rates are expected to rise in the future – and nobody knows how high they will go!

Unfortunately, not everyone qualifies for a Roth IRA, though. So, it is important to know whether or not you can set up one of these accounts – and if not, what alternate strategies are available to you, along with what you should consider before a Roth IRA conversion if you decide to go that route.

Are You Eligible for a Roth IRA?

One of the eligibility criteria for opening and funding a new Roth IRA is linked to the amount of income that you currently bring in, as well as the way in which you file your income tax return. For 2022, the Roth IRA income limits are as follows:

Roth IRA Income Limits (for 2022)

Source: RothIRA.com

Even if you currently earn too much to qualify for opening a Roth IRA, though, there may still be ways to take advantage of this type of account. One is via a Roth IRA conversion.

Strategies for Taking Advantage of Roth IRAs – Even If You Earn “Too Much”

A Roth IRA conversion – which is sometimes also referred to as a “back door IRA” – consists of taking assets from a traditional IRA account and moving them over (or “converting” them) to a Roth.

Currently, anyone – regardless of how much income they presently earn – is allowed to take part in a Roth IRA conversion. In addition, there is no limit on the amount of money that can be transferred over from the traditional IRA account.

Going forward, once you have a Roth IRA in place, you may be able to make annual contributions into the account. At this time (in 2022), you can contribute up to $6,000 if you are age 49 or under, and an additional $1,000 in “catch up” contribution if you are age 50 or over.

Roth IRA Annual Maximum Contribution Limits (for 2022)

Source: RothIRA.com

Does the “Cost” of an IRA Conversion Outweigh the Future Benefits?

Converting from a taxable traditional IRA over to a tax-free Roth IRA account can end up “costing” you in taxes for the year(s) in which the conversion is made. So, in addition to considering the Roth IRA income limits and the amount of the annual maximum contribution, it is also important to compare what you will have to pay in taxes now versus what you could end up saving yourself in tax payments down the road at the time of withdrawal. Yet, with today’s historically low tax rates, a Roth IRA conversion could make a lot of sense.

Another nice feature with regard to the Roth IRA is the fact that there are no required minimum distributions (RMDs) like there are with traditional IRAs and retirement plans. Therefore, once you turn age 72, you will not have to start making IRS-mandated withdrawals from the Roth account – allowing it to continue generating tax-free growth.

Still Have Questions About Roth IRAs or Retirement Income Strategies?

A Roth IRA can provide you with a great way to secure tax-free income in retirement. In doing so, there may also be strategies for setting up one or more income streams that will last for the remainder of your lifetime, no matter how long that may be.

So, if you still have questions about generating income in retirement, contact us and chat with one of our retirement income specialists. At Sooner Retirement, our primary focus is on educating consumers – as well as financial professionals – on retirement income strategies, including the use of annuities.

To get your questions answered or to learn more about generating an income stream for life, feel free to contact us at (918) 719-1848 or by sending us an email through our secure online contact form . We look forward to hearing from you.

The post What to consider before a Roth IRA conversion appeared first on James K. Ault – Sooner Retirement .