Retirement Income

What Are Required Minimum Distributions or RMD’s?

Required Minimum Distributions (RMDs) can feel like a complex and imposing topic, but they play an essential role in retirement planning. The rules surrounding RMDs are important for anyone with a tax-deferred retirement account, as understanding them can help you manage your income, reduce tax burdens, and ensure compliance with IRS regulations. This guide will help clarify what RMDs are, why they matter, and how you can navigate them effectively. What are Required Minimum Distributions (RMDs) RMDs are the minimum amounts that you must withdraw annually from your tax-deferred retirement accounts once you reach a certain age. These accounts include Traditional…
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The Power of Assumptions in Retirement Planning: Why They Shape Your Financial Future

Retirement planning is not just about building a nest egg; it’s about creating a roadmap for how your finances will unfold over what may be decades of retirement. As with any long-term financial projection, this process is built on a foundation of assumptions. Which assumptions you use when planning your retirement will heavily influence which strategies shine and which may fail. Thus, being comfortable with these assumptions is crucial, as they will guide the financial strategies you’ll work with for the rest of your life.Let’s explore the key assumptions that form the bedrock of any retirement plan and the importance…
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Navigating Variable Income Strategies in Retirement

Retirement income planning involves careful consideration of how to fund your lifestyle and future goals. Variable income strategies provide a flexible approach to withdrawing from a retirement portfolio by adjusting the amount withdrawn based on various factors like market performance, life expectancy, and portfolio sustainability. Unlike reliable income strategies, where income is drawn from sources like social security, pensions, or annuities, variable strategies seek to adapt over time to create a balance between spending and optimizing portfolio longevity.Nearly every retirement planner uses some variation of the strategies discussed here. However, there are many strategies out there, so I'll just be…
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Understanding the Types of Retirement Projections

Financial Planning has a number of different tools available to provide analysis at different levels. In addition to the assumptions that are used within a plan, the method used to project your retirement income and expenses will heavily influence how outcomes are evaluated.There are three main types of retirement projections out there: Flat Average Projections Flat average projections use fixed assumptions for life expectancy, return rates, and inflation, applying them consistently throughout the retirement period. While this approach is straightforward, it does not account for variability in market returns or life events. For instance, if you assume a flat 5%…
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How Insurance Works: The Law of Large Numbers

Insurance is a financial product that helps individuals and businesses protect themselves from financial losses. At its core, insurance works by pooling risks. By spreading the risk among many, the insurance company can provide financial protection to each individual without any one person bearing the full burden of a catastrophic loss.  The Law of Large Numbers The foundation of insurance is built on a key principle in statistics: the Law of Large Numbers. This law states that as the size of a group of insured people (the "pool") increases, the actual results will become more predictable and stable, aligning closely with the…
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Retirement Income Strategies

When planning for retirement, choosing how to convert savings into income involves balancing certainty with flexibility. Broadly, retirement income strategies can be divided into two categories: Reliable Income Strategies and Variable Income Strategies. Each has its own advantages and considerations depending on personal risk tolerance, financial goals, and the need for predictable income.1. Reliable Income Strategies (Guaranteed)Reliable income strategies focus on creating income streams that are consistent and predictable, providing retirees with a "floor" of guaranteed income that typically lasts for life. These strategies are ideal for covering essential expenses, such as housing, healthcare, and daily living costs, since they…
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Understanding Benefit Base vs. Cash Value in an Annuity

Annuities are a staple in retirement planning, offering a mix of benefits that can provide peace of mind in the later stages of life. However, navigating the components of an annuity, particularly the distinction between the benefit base and the cash value, can be confusing. To simplify this, let's explore these concepts using a relatable analogy: a store coupon. The Benefit Base: Your Special Store CouponImagine you receive a coupon from your favorite store. This coupon is not cash; it has no value outside the store. It’s only useful for getting a discount on a future purchase or redeeming a…
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The Original 4% Rule Explained

When it comes to planning for retirement income, you do not have to look very far in financial blogs and forums to find the 4% Rule and for good reason. The 4% Rule ushered in a new era of modeling techniques for financial planners to help people navigate what their retirement might look like in the future and how they can safely spend their accumulated resources over a long and uncertain timeframe.The 4% rule was developed by financial planner William Bengen in the early 1990s. Bengen's work, first published in 1994 in the Journal of Financial Planning, was a response…
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The Basic Types of Annuities

Annuities are contracts with an insurance company that provide certain benefits. There are many types of annuities out there and the terminology and usage can be confusing. This article provides and overview of the basic types of annuities and their variations. Quick Annuity Primer Base Contract: Every annuity starts with a base contract. The base contract has certain guarantees embedded it such as minimum interest rates, annuitization factors, fees, surrender charges, how the cash value can be invested. Riders: Some annuities have the option to add riders. Riders are additional features that can be added to the base contract to provide additional…
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How Social Security Benefits are Taxed

After years of hard work and seeing that large deduction from your income called FICA (or SECA if you're self employed), you've finally made it to begin collecting your Social Security benefits. The checks start rolling in but then you notice something when you file your taxes. Your Social Security benefits are taxable! Is that right? Unfortunately, yes. A lesser-known aspect to those yet to claim is their potential taxability. Understanding how Social Security benefits are taxed can help beneficiaries manage their finances more effectively and avoid unexpected tax liabilities. This article will delve into the specifics of Social Security taxation, including…
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