A growing challenge for Fortune 500 employees across America is that of being able to retire comfortably. Retirement planning and saving is a difficult process for the majority of Fortune 500 employees. Over the past decades, wages have stagnated, and costs of living have continued to rise, making it difficult for most to meet their current financial obligations. As a result, it’s become even more difficult to accumulate the additional income to support a comfortable and secure retirement. This article for Fortune 500 employees and retirees discusses some of the obstacles to obtaining a sufficient income during your retirement from Fortune 500, as well as strategies that can help you overcome any obstacles, ensuring that you can retire from Fortune 500 as comfortably as possible.
The two main sources of income that people typically rely on are Social Security and Retirement Accounts like 401(k)s.
If you’re reading this, you’re probably nearing retirement or have already retired from Fortune 500, and are trying to figure out how to pay for it. Over the past 40 years, the financial landscape has changed dramatically which has necessitated significant changes in our approach to retirement planning. Unfortunately, the income that most people rely on for their retirement today is both less secure and less sufficient than in decades prior.
On top of that, people are living longer lives, on average, while incurring much higher costs for healthcare over their lifetimes. With economic factors squeezing Americans from all sides, the two main sources of income that people typically rely on, Social Security and retirement accounts like 401(k)s or IRAs, are not nearly robust enough to provide retirees with the income necessary to secure a comfortable retirement.
From our experience, we've found that many Fortune 500 employees and retirees never plan for their retirement and, instead, rely only on Social Security benefits to provide their retirement income. In 2022, the average monthly Social Security benefit is $1,657 per month. The maximum possible Social Security benefit for someone who retires at full retirement age is $3,345 per month. [6] Even if Social Security income manages to cover the basic costs of living during retirement, it doesn’t provide ample money to cover emergency expenses like major home repairs and other unexpected expenditures. The reality is, most Fortune 500 retirees won't be able to rely on social security as their only source of income. Some even question whether or not Social Security helps at all. There is no plan in place other than Medicare for the eventuality that he or she will incur costs from an unforeseen medical need
For generations, pensions were a primary method of securing a retirement income for most Americans. Pensions, or defined-benefit plans, were relatively reliable and substantial. But outside of government jobs, pension plans are rapidly disappearing. In the 1980s, the 401(k), or defined-contribution plan, was introduced as a pension supplement. We switched to a system where the worker in the private sector takes on most of the cost and all of the risk.[7] There are a few drawbacks to these kinds of retirement accounts.
First, 401(k)s and IRAs are tied to an often-volatile stock market which introduces a considerable amount of risk into your Fortune 500 retirement plan if they are your sole strategy. Additionally, they offer limited investment options, not to mention that they lack transparency and liquidity. But the biggest problem with retirement accounts is that, even with Fortune 500-matching benefits, people just don’t contribute enough throughout the course of their working lives to retire comfortably
Below is a recommendation of how much Americans should have saved at every age: [8]
By 30, the equivalent of your salary
By 40, three times your salary
By 50, six times your salary
By 60, eight times your salary
By 67, ten times your salary
Only a small portion of Fortune 500 employees have the foresight and income to invest in their retirement. Many of them can accumulate some additional savings, but their investments often are managed poorly and they don’t have an exit strategy or an end goal in mind. Even all of the above retirement savings methods taken together don’t represent solid, reliable, and secure retirement income.
We recommend our Fortune 500 clients fulfill two major requirements for a strong retirement income strategy: obtain multiple streams of income and a plan for the strategic timing of income disbursements. Multiple income streams are crucial for providing your desired lifestyle during your retirement from Fortune 500 and allowing for unexpected expenditures. The strategic timing of income disbursements allows you to control your yearly income to avoid over-taxation.
Multiple Guaranteed Income Streams
While your Fortune 500 401(k) or IRA and your Social Security benefits are an integral part of your overall Fortune 500 retirement plan, they shouldn’t be your only sources of retirement income. The wise approach is to arrange for multiple guaranteed income streams that are appropriate for your retirement goals. You should use a variety of different investments, spreading money across different assets in accordance with your specific risk tolerance.
Various income streams from different sources provide you with options to help balance risk and return. Your age at the time you devise your Fortune 500 retirement strategy will help determine your risk tolerance and, therefore, which financial vehicles are right for you. For example, if you are younger, you have more time to save for your retirement, but you typically need to save more. So, it makes sense to invest in higher-risk, higher-return financial opportunities. Your Fortune 500 401(k) or IRA is usually considered a higher risk as it is often invested in stocks or mutual funds which are potentially high-growth. If you are closer to your retirement from Fortune 500, your risk tolerance is likely much lower because you want to protect the savings you have already accumulated.
If this is the case you should stay away from riskier investments and put your money in something with safer returns such as CDs, treasuries, insurance policies, etc. A wise approach in the lifecycle of your Fortune 500 retirement planning is to start with high-growth investments and then phase out risk over time as you approach retirement. In any case, there are numerous investment options with varying levels of risk depending on your requirements.
Source of Income: Annuities
Many of our Fortune 500 clients ask us about the validity of annuities for providing retirement income. Annuities are a common method of providing income during retirement. However, there are a few things you should know about annuities before banking on them for retirement income. Variable annuities are considered risky because they are tied directly to the stock market. Fixed and indexed annuities tend to be safer options and have very low fees while variable annuities can cost quite a bit more due to the potential for greater returns.
Variable annuities are not suitable for short-term goals because insurance company charges may apply if you withdraw your money early. The buyer is exposed to market risk but has the possibility of a larger income during the payout phase. Something like a fixed indexed annuity (FIA), on the other hand, is relatively low risk because it guarantees* a specified payout if an income rider is selected, regardless of how the underlying investments perform. You may not think of real estate investment as a retirement savings option, but it is an excellent way to diversify your portfolio. Real estate is well-balanced between risk and returns to provide attractive gains with less volatility than the stock markets. It also provides protection against inflation. As prices rise, so does the cash flow you get from the property.
Something Like a Fixed Indexed Annuity (FIA),
on the Other Hand, Is Relatively Low-risk...
The government offers tax breaks for property depreciation, insurance, maintenance repairs, travel expenses, and property taxes. Real estate investors are also entitled to lower tax rates for their long-term investments.
Source of Income: IUL & SDIRA
Roth conversions are not for everyone. Here are some of the instances when you wouldn’t make a Roth role: An insurance policy isn’t typically thought of as a source of income but, with the right plan, that’s exactly what it can be. An indexed universal life insurance policy (IUL) is a type of permanent life insurance that pays interest based on the movements of the stock market. They function similarly to the FIAs mentioned above in that you’re protected from losses in exchange for receiving a reasonable and fair portion of the upside. An IUL is extremely flexible and could give you higher interest rates than other kinds of life insurance. They give you the option to use them as an income source, including the eventuality that you need to pay for long-term care or other major medical events toward the end of your life. The specifics of IULs are determined by the organization providing you with the product. It's important that fortune 500 employees always work with a financial institution they trust, read the documents closely, and ask a lot of questions.
One less-utilized investment vehicle for retirement savings is the self-directed IRA (SDIRA). This type of account functions similarly to a run-of-the-mill IRA with the added benefit that you get to choose where your contributions are invested. This means that your options for investment are much broader than a typical IRA where options usually are very limited, allowing you to further dictate the overall distribution of risk within your portfolio. The SDIRA is a great way to incorporate real estate investments into your retirement income plan, too. However, SDIRA custodians are not allowed to give financial advice, so the burden of research, due diligence, and management of assets rest solely on you. So, it is in your best interest to work with a financial advisor, you trust to guide you through these investment decisions.
Having a holistic view of your yearly retirement income allows you to take disbursements strategically so you can avoid unnecessary taxation. Tax strategy is an integral part of any intelligent financial plan. For example, you’re required to begin taking disbursements from your IRA once you turn 72. These are known as Required Minimum Distributions (RMDs). Your RMD and your Social Security benefit should be the first income streams calculated into your yearly income for two reasons. First, since you’ll be required to take these sources of income, you can draw from your other income resources only what you need to fulfill your planned yearly income, and the remainder can continue to grow tax-deferred in their respective accounts. Second, this allows you to avoid entering a higher tax bracket if you don’t need to and, thereby, avoid an unnecessary tax burden.
Assuming you have some cushion between your planned yearly income and the next tax bracket, you can make strategic conversions of your tax-deferred IRA into a Roth account. That amount will be taxed as income for the year but you, and possibly your beneficiaries, can avoid a major tax bomb down the road.
It is important for all Fortune 500 employees and retirees to remember that your retirement will look nothing like that of retirees 40, 30, or even 20 years ago. Pensions are rare, Social Security is changing, while healthcare and the costs of living are quickly outpacing average incomes. As a result, planning your retirement income is vastly different from before; it’s more crucial than ever to have a plan built for the 21st-century economy and tailored to provide you with the lifestyle, confidence, and fulfillment you desire. Of course, any well-constructed financial plan is a moving target, so you will want to consult with your financial advisor at least once a year to review your income plan and make any necessary adjustments to ensure the best possible outcome which, for you, is more income.
Disclosure: Securities are offered through FSC Securities Corporation (FSC) member FINRA/SIPC. Investment advisory services are offered through The Retirement Group, LLC. FSC is separately owned and other entities and/or marketing names, products or services referenced here are independent of FSC. Office of Supervisory Jurisdiction: 5414 Oberlin Dr #220, San Diego CA 92121
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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.
Data provided by CNBC News: https://www.cnbc.com/2021/03/24/how-401k-brought-about-the-death-of-pensions.html
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