Does planning for retirement have you too overwhelmed to even start?

Does planning for retirement have you too overwhelmed to even start? The key is understanding the challenges, the available solutions and where to turn for help. Take these steps to get moving.

Step 1: Understanding the Challenges

The first step in developing your retirement plan is understanding the challenges you can expect to face. These challenges will vary along with your individual needs, wants and resources. Although each retirement may be unique, there are some challenges that are common to most retirees. Some of the most significant are presented here to help you begin understanding what you’re up against:

Living Longer
To develop a strategy that will provide income for the rest of your life, you need to understand how long that may be. Healthier lifestyles and advances in health care have increased average life expectancies. Living longer may not sound like a problem, but within the context of retirement planning, it means planning for more years and greater total income needs.

Rising Prices
Over time, prices rise and eat into your purchasing power. We can all remember a time when going out for dinner and a movie would cost much less than it costs today. Going out is one thing, but inflation can have the same eroding effect on your retirement expenses as a whole.

Let’s assume annual expenses of $100,000. The annual rate of inflation has been relatively stable since 1990, and has hovered around 3 percent.* Based on that rate, this chart demonstrates the future equivalents of $100,000, and how much money you’ll need over time in order to cover those same expenses.

$100,000 Annual Expenses



1- $103,000

10- $134,392

20- $180,611

30- $242,726

Factor in longer life expectancies, and you can see how rising prices can compound the problem of generating enough income to last throughout your life. To overcome this challenge, you need a strategy that will allow your nest egg the opportunity to grow and stay ahead of inflation.

Market Volatility
Most of us can’t afford not to grow our nest eggs, so we need to invest in the market, but market swings can be stressful. They can send your portfolio value soaring or plummeting, and take your retirement plans along for the ride. It’s not just how much you lose that determines the magnitude of a loss’s impact on your retirement, it’s also when. Losses at the beginning of your retirement are more likely to be detrimental and more difficult to recover from. You need your income to be there, no matter what returns your investments experience.

Step 2: Understanding Retirement Income Sources and Solutions

The obstacles that stand in the way of developing your plan are daunting, but they aren’t insurmountable. Now that you have an idea of what the challenges are, it’s time to look at some of the tools you have at your disposal to overcome them.

Social Security
The first source of income you may be able to rely upon is Social Security. If you’ve contributed to Social Security during your working years, it is one of the most important sources of retirement income for many of us because we can’t outlive the income it provides. It is designed to be there, no matter what the markets do, and no matter how long you live.

We talked about inflation earlier. Another reason Social Security is so important for your financial future is because inflation protection is built into the system. Each year, the Social Security Administration (SSA) looks at a measure called the Consumer Price Index to determine how inflation has affected the cost of goods and services, and may increase benefits to account for increases in the cost of living. Your benefits have the potential to increase every year for the rest of your life to account for inflation – one of the major concerns your retirement assets have to face.

Social Security is the single income source most likely to play a role in your retirement. For the average worker who’s 65 or older, Social Security represents more than a third of the worker’s annual income, coming in at 38 percent.

With a pension, an employee and/or an employer will make regular contributions to an investment fund during the employee’s working years. When that employee retires, the pension pays out monthly income that’s guaranteed for the rest of the employee’s life. Unfortunately, over time, pensions have become increasingly scarce.

A variable annuity is a tax-deferred investment product that offers

an attractive way to address your specific retirement income needs, avoid unnecessary risks and receive important guarantees to help you protect your financial future. Some of the features they offer include:

Growth opportunities – Variable annuities offer a variety of investment options, including equity portfolios that may allow you to outpace inflation and increase your nest egg.
Guaranteed lifetime income – With a variable annuity, you can choose to turn your contract’s accumulated value into a series of payments that are guaranteed to last for the rest of your life.
Death benefit – Variable annuities provide a death benefit for your spouse or loved ones.
Tax deferral – You won’t pay taxes on any gains in your annuity’s value until they’re withdrawn, which may allow them to compound more quickly.
Please see disclosures below for important information regarding risks and limitations associated with variable annuity products.

Fixed annuities are a good option for conservative investors or investors less concerned about inflation. You can lock in a guaranteed rate for a short period of time and watch your money grow on a tax-deferred basis. You can also withdraw your money when the need arises without penalty from the IRS if you are over age 59½. (See contract for restrictions). Some fixed annuities allow you to withdraw your funds without penalty if you require skilled care in a nursing home or hospital.

Traditional and Roth individual retirement accounts (IRAs) are another way to accumulate funds for retirement. In a traditional IRA, contributions and growth are tax deferred and withdrawals are fully taxable. With a Roth IRA, contributions are made on an after-tax basis, but account growth and qualified withdrawals are tax-free.

If you have retirement plans with former employers, you may want to consider rolling over your assets to an IRA account. Consolidating all of your retirement assets into one account will allow you to track investment performance more easily and provides the convenience of receiving only one statement.

Step 3: Repositioning Your Assets

Most people spend years climbing the mountain of wealth accumulation, building their assets to prepare them for that magical day of retirement. This is the point where many people make a common mistake with retirement planning. Once they get there, the accumulation phase ends and the distribution phase begins, and they fail to position their assets to ensure they’ll last throughout the retirement years. Far too often, they run out of money.

View this short video to learn how to successfully position your assets for retirement.

Step 4: Understanding the Value of a Financial Professional

In today’s heavily regulated market, tax benefits and investment dividends achieved through retirement plans can be significant. Many plans offer immediate dollar-for-dollar tax savings. But the rules are diverse and complex.

Cosmo Financial’s expert consultants can help you achieve your financial objectives through a host of wealth building investment strategies and a full range of variable products to help complement your current financial position. Call for an appointment at your convenience.