Retiring? Max Out Your Income

By Janet Bodnar, Kiplinger's Personal Finance | November 17th, 2017

Like everyone on the verge of retirement, I have one major concern: income. As a woman on the verge of retirement, I have another major concern: longevity. It’s possible that I’ll live into my mid-80s or even longer. So how should I, and other women, plan on financing 20 to 30 years of retirement?

First off, add up how much you need to cover your expenses. That’s crucial information because your top priority is to ensure a steady stream of income that covers your basic living costs.

Women who are covered by an employer pension have a big advantage. Not only can you count on a regular payout, but chances are you’ll also get more than if you were to take a lump sum and use it to buy an annuity from an insurance company. That’s because pension plans use gender-neutral calculations, which work in favor of women, says Mark Cortazzo, senior partner at Macro Consulting Group, in Parsippany, N.J.

What if you have a choice between taking a pension or investing a lump sum? Investing the lump sum could make sense in certain circumstances – say, you don’t expect to outlive your husband, you have income from other sources, or you want to leave a legacy. But you’re taking a big risk if you’re depending on your investments to cover your basic expenses, especially if the stock market tanks.

Social Security benefits can help cover basic expenses, but you may want to hold off claiming benefits until age 70 to maximize your monthly payments. If you make the most of Social Security, a pension and other assets, “that’s the trifecta,” says Cortazzo. If you’re married, make sure you’re the beneficiary of your husband’s retirement accounts. If he has a traditional pension, you’re entitled by law to a survivor benefit, which reduces the benefit your husband receives during his lifetime. Couples can sometimes increase their overall income by choosing to take the higher, single-life benefit and buying life insurance to protect the surviving spouse.

You can maximize your Social Security survivor benefit if your husband waits until age 70 to file for benefits and qualifies for delayed-retirement credits and a higher payout. But be careful, lest you have the same experience as Judy Rubin, a partner with Plaza Advisory Group, in St. Louis. When Rubin’s husband turned 70 and applied for benefits, “Social Security encouraged him to take a lump sum” payment of the benefits he’d missed since age 65, says Rubin. If he had agreed, he would have forfeited the delayed-retirement credits and curtailed Rubin’s ultimate survivor benefit.

I’ll let you know how my own retirement unfolds.

Janet Bodnar is editor at large at Kiplinger’s Personal Finance magazine. Send your questions and comments to moneypower@kiplinger.com. And for more on this and similar money topics, visit Kiplinger.com.