How to Turn Retirement Savings into Retirement Income in Virginia & West Virginia

You’ve spent decades saving for retirement. Now comes an entirely different challenge:
How do you turn your retirement savings into income that can help support you for the rest of your life?

For retirees in Virginia and West Virginia, transitioning from earning a regular paycheck to relying on Social Security, retirement accounts, investments, pensions and other assets can require a completely different way of thinking about money.

Instead of viewing your retirement portfolio simply as a large account balance, it can be helpful to think about how those assets may support the monthly income you need throughout retirement.

At Mintco Financial, we help individuals and families evaluate retirement income strategies based on their expenses, assets, Social Security, taxes, risk tolerance and long-term goals.

Retirement Changes the Purpose of Your Money

While you’re working, the primary objective of retirement investing is usually accumulation.

You’re contributing money and trying to build assets for the future.

Retirement changes the equation.

Now those assets may need to help provide income for potentially 20, 30 or even more years.

That means retirement planning isn’t simply about asking:

“How much money have I saved?”

Another important question is:

“How much sustainable income can my savings help provide?”

Where Does Retirement Income Come From?

Virginia and West Virginia retirees may receive income from several different sources.

• Social Security
• 401(k) plans
• Traditional IRAs
• Roth IRAs
• Pensions
• Annuities
• Investment accounts
• Bank savings and CDs
• Rental income
• Part-time employment

The objective is to understand how these different resources can work together to support your spending needs.

3 Strategies for Turning Retirement Savings Into Retirement Income

Strategy #1: Use Interest, Dividends and Portfolio Income

One approach is to use income generated by your investments while attempting to preserve a significant portion of your principal.

Depending on your portfolio, income might come from:

• Interest
• Dividends
• Bonds
• CDs
• Fixed-income investments
• Other income-producing assets

This strategy can be attractive because you’re attempting to limit how much principal you consume.

However, it doesn’t guarantee that you won’t outlive your money.

Interest rates change. Dividends can be reduced. Investments fluctuate. Inflation can increase your expenses over time.

The amount of income your portfolio produces also may not be enough to support your desired lifestyle.

Strategy #2: Use a Planned Portfolio Withdrawal Strategy

Another approach is to intentionally withdraw both investment earnings and some principal over the course of retirement.

Spending principal isn’t necessarily a failure.

You accumulated retirement assets specifically so they could eventually help support your retirement.

The challenge is determining an appropriate withdrawal strategy.

Withdraw too aggressively and you increase the risk of depleting your portfolio too early.

Withdraw too conservatively and you may unnecessarily restrict your lifestyle despite having accumulated substantial retirement assets.

What Is a Sustainable Retirement Withdrawal Rate?

You may have heard of the “4% rule,” but retirement income planning shouldn’t automatically be reduced to one percentage.

An appropriate withdrawal strategy can depend upon:

• Your retirement age
• Portfolio size
• Investment allocation
• Expected retirement expenses
• Social Security income
• Pension income
• Market performance
• Inflation
• Taxes
• Health and longevity
• Legacy goals

Your withdrawal rate may also need to change as circumstances change.

Strategy #3: Create Contractual Income With an Annuity

Some retirees want a portion of their retirement income to be predictable regardless of what happens in the financial markets.

An annuity can potentially serve that purpose.

An annuity is a contract with an insurance company. Depending upon the type of annuity selected, it may provide a stream of income for a specified period or for life.

What Is an Immediate Annuity?

With a Single Premium Immediate Annuity (SPIA), you generally provide an insurance company with a lump sum in exchange for contractual income payments that typically begin relatively soon after purchase.

Depending upon the contract selected, income can potentially be structured to last:

• For your lifetime
• For the joint lifetimes of you and your spouse
• For a specified period
• For life with certain beneficiary protections

Because the insurance company can contractually provide lifetime payments, some people informally describe this approach as creating a “personal pension.”

However, the amount of income and what happens to the remaining value after death depend heavily upon the payout option selected.

Should You Put All Your Retirement Savings Into an Annuity?

Not necessarily.

For many retirees, maintaining liquidity and investment flexibility is important.

An annuity may potentially be considered for a portion of retirement assets while other money remains available for:

• Emergencies
• Healthcare expenses
• Major purchases
• Travel
• Investments
• Family needs
• Legacy planning

Before purchasing an annuity, understand its liquidity provisions, surrender charges, guarantees, fees when applicable, income options and the financial strength of the issuing insurance company.

Think About Retirement Savings as a Paycheck Generator

One useful way to approach retirement is to stop focusing exclusively on the size of your retirement accounts.

Imagine someone retires with $1 million.

The number itself sounds substantial, but it doesn’t answer the most important questions:

• How much can be spent each month?
• How long does the money need to last?
• How much Social Security will be received?
• Is there a pension?
• How much investment risk is appropriate?
• How will inflation affect future spending?
• What happens during a major market decline?

Retirement income planning attempts to convert the account balance into an organized strategy for answering those questions.

How Much Monthly Income Will You Need in Retirement?

Before determining how to generate retirement income, you need an idea of how much you expect to spend.

Start by looking at your current expenses.

Separate them into two broad categories.

Essential Retirement Expenses

• Housing
• Property taxes
• Utilities
• Food
• Transportation
• Insurance
• Healthcare
• Prescription medications
• Basic household expenses

Discretionary Retirement Expenses

• Travel
• Golf and recreation
• Dining out
• Entertainment
• Hobbies
• Gifts
• Helping children or grandchildren

Understanding the difference can be helpful because your essential expenses may require a higher degree of income predictability than discretionary spending.

Your First Years of Retirement Can Be Expensive

Don’t automatically assume your spending will drop dramatically the day you retire.

Many new retirees initially spend more because they finally have time to travel, pursue hobbies, improve their homes and enjoy activities they postponed while working.

Tracking actual spending during the first several years of retirement can help you identify whether your withdrawal strategy needs adjustment.

Don’t Forget Inflation

A retirement that begins at age 65 could potentially last into your 90s.

Even modest inflation can significantly increase the cost of living over such a long period.

That’s one reason retirement income planning shouldn’t focus exclusively on what you need during the first year of retirement.

You also need to consider what your expenses could look like 10, 20 or 30 years later.

Social Security and Your Retirement Income Strategy

Social Security can be an important source of lifetime retirement income.

The age at which you claim benefits can affect the amount of your monthly benefit.

Rather than making the Social Security decision separately, consider how it interacts with:

• Your retirement date
• Other income
• Retirement accounts
• Spousal benefits
• Taxes
• Longevity considerations

Required Minimum Distributions and Retirement Income

Tax-deferred retirement accounts can eventually become subject to Required Minimum Distribution (RMD) rules.

These requirements can affect your taxable income and retirement withdrawal strategy.

RMD rules have changed over the years and can depend upon your birth year and the type of retirement account involved.

Make sure your retirement strategy reflects the current rules that apply to you.

Taxes Matter When Creating Retirement Income

Two retirees with identical account balances can have very different after-tax retirement income.

That’s because retirement assets can be held in different types of accounts.

For example:

• Traditional 401(k)s and IRAs generally contain tax-deferred money.
• Roth accounts can have different tax treatment when applicable requirements are satisfied.
• Taxable investment accounts have their own tax considerations.
• Annuity taxation depends upon how the contract was funded and structured.

A retirement income strategy should consider not simply how much you withdraw, but also where the withdrawal comes from.

Market Declines Can Be Especially Important Early in Retirement

A major market decline shortly after retirement can have a different impact than the same decline during your working years.

When you’re accumulating assets, you may still be contributing money during a downturn.

In retirement, you may simultaneously be withdrawing money from the portfolio.

This is sometimes called sequence-of-returns risk.

A retirement income strategy can consider how much money should remain exposed to market fluctuations and how much should potentially be held in more stable or predictable resources.

Retirement Income Planning in Virginia

Mintco Financial works with individuals and families throughout Virginia who are preparing for or already living in retirement.

This includes residents of:

• Richmond
• Virginia Beach
• Norfolk
• Chesapeake
• Roanoke
• Lynchburg
• Newport News
• Hampton
• Fredericksburg
• Winchester

Retirement Income Planning in West Virginia

We also help individuals and families throughout West Virginia understand their retirement income options, including residents of:

• Charleston
• Huntington
• Morgantown
• Parkersburg
• Wheeling
• Beckley
• Martinsburg
• Fairmont
• Clarksburg
• Bluefield

Your Retirement Plan Should Be Unique to You

There is no single retirement income formula that works for everyone.

Two people can retire at the same age with the same amount of savings and require completely different strategies.

One may have a pension. Another may depend almost entirely on Social Security and retirement savings.

One may want to leave a substantial inheritance. Another may prioritize spending more during retirement.

One may be comfortable with market fluctuations. Another may place a greater value on predictable income.

Your retirement income strategy should reflect your circumstances, your priorities and your goals.

Questions to Ask Before You Retire

• How much do I currently spend each month?
• Which expenses will continue after retirement?
• When should I claim Social Security?
• Do I have a pension?
• How much income must my investments provide?
• How much investment risk am I comfortable taking?
• How will I handle a major market decline?
• How much cash should I maintain?
• Do I want a portion of my income guaranteed?
• How will taxes affect my withdrawals?
• What are my plans for healthcare costs?
• Do I want to leave money to my family?

Disclosure: This material is provided for general educational purposes and should not be considered individualized investment, tax, legal or insurance advice. Investing involves risk, including possible loss of principal. No withdrawal strategy can guarantee that a portfolio will last for life. Annuity guarantees are subject to the claims-paying ability of the issuing insurance company. Annuities may have surrender charges, limitations and tax consequences. Consult appropriate financial, legal and tax professionals regarding your individual circumstances.