We often hear from retirees and near-retirees that they ‘have plenty of time to make a decision‘ when it comes to proper financing planning for their Required Income – but what is the true cost of waiting?
Required Income is defined as the amount of retirement income needed to pay for basic living expenses, such as mortgage, car, food, medical, utilities, gas, etc. You know: The bills you MUST pay every month, no matter what. As a result, your Required Income must be insured to last your entire life and it must be insured against losses.
Typically, this strategy only requires a portion of your retirement nest egg to accomplish this task, but the longer you wait, the more it will require to cover your Required Income Gap. Here is an example of what I mean:
- John is 60 years old and is married. His wife is 58 years old. He is working full-time and makes $50,000 per year and his income ‘gets them by‘. His wife works part-time, which is where their ‘play money‘ typically comes from. Their most recent Social Security statement states that if they both continue to work to age 66, their combined Social Security Income amount would be $36,000 per year – but their basic needs requires $50,000 per year ‘to get them by‘. As a result, they will have a $14,000 per year Income Gap in retirement. Make sense so far?
- John feels that they have ‘plenty of time‘ to wait to make any sort of retirement planning decisions because he is still working full-time and is in good health. He is contributing into his 401(k) at his work, in which his employer is matching up to 6% and his wife is young and has a nice, part-time job. All is well, so there is no need to make any decisions yet.
Or is there? Here is an example of the strategy put together by my team at Income For Life to determine his Cost of Waiting to ensure that the $14,000 per year Income Gap is in place at age 66 (joint income, meaning income continues for whichever of them lives the longest):
- At 60 yrs old: $172,753 needed to fund his income gap for life.
- At 61 yrs old: $184,848 needed to fund his income gap for life.
- At 62 yrs old: $197,781 needed to fund his income gap for life.
- At 63 yrs old: $211,632 needed to fund his income gap for life.
- At 64 yrs old: $226,444 needed to fund his income gap for life.
- At 65 yrs old: $242,304 needed to fund his income gap for life.
- At 66 yrs old: $259,266 needed to fund his income gap for life.
So, what is his ‘Cost of Waiting’? If he waits until age 66 to make his decision, his cost of waiting is $86,513 – using the same strategies and assets that were readily available at age 60. The longer John waits, the more it will cost to fund their income gap.
To put it another way: John and is wife have a specific income need of $50,000 per year for their basic living expenses in retirement and his Cost of Waiting until age 66, using the above strategy, is $86,513. If you do the math, the Cost of Waiting means that John is working his last 1.73 years FOR FREE – not to mention the above strategy does not take into account potential market losses inside his 401(k) plan, which the above strategy protects them from.
Could John wait? Absolutely. Will it cost him more if he waits? Yes. Is this strategy available to him RIGHT NOW? Yes. Your call, John.
Choose Our Financial Planning Services
Call our team at 877-284-8929 today to request our Retirement Income Gap Worksheet today to determine your own income gap – and find out what your Cost of Waiting really is. We offer top-notch financial planning services to individuals in several cities across the U.S. Call us today.
Matt Nelson, president
Income For Life LLC
The hosts of Income For Life Radio
877-284-8929 | www.IncomeForLife.org