The Income Cliff
The Income Cliff:
How Much Money Do I Need For Retirement?
How much money do I need for retirement? It’s a common question. But, there’s one element most people don’t think about when planning for retirement: the income cliff. The “cliff” happens when income drops because one spouse of a married couple passes away. In some cases, the income can drop significantly.
For example, let’s say one spouse has a pension of $45,000 per year. In addition to the pension, the couple also both collect social security benefits of $25,000 per year each. Therefore, the total annual income for this couple is $95,000. From an income planning standpoint, one might think that this is enough for the couple to live on. However, what happens when one of the spouses passes away?
Pensions & Social Security
Pete has been helping people with wealth strategies since 1986. He has studied (and continues to study) macroeconomics and is an avid reader. Mostly, we do the work we do because we believe people deserve a plan. A comfortable retirement doesn’t happen by chance. Instead, it happens with a focus, a plan, and a desire to learn about your options. When you know your choices, you may be able to create better strategies. We care about helping you make the right choices for your financial future. Indeed, a comfortable retirement is possible with the right circumstances.
Also, Social Security benefits have rules that restrict how much you can receive. For example, you cannot receive your own benefit in addition to your survivor’s benefit. In fact, you will only get the higher of the two amounts. Also, your survivor benefit could be affected if any of the following are true:
- You fall below retirement age when your spouse passes away
- You are still working
- Your income exceeds the Social Security earnings limit
- You are already receiving a Social Security benefit
With an Income Cliff - How Much Money Do I Need For Retirement?
Data shows us that people are living longer. Therefore, it is a good idea to prepare. Once you know how much money you need to retire, you also need to look at variables. For instance, if your spouse’s pension or social security income goes away, will you still have enough? Designing an income plan takes careful thought. If your income drops off, do you have an alternative?
Some retirement strategies allow you to protect your principal, yet offer additional income. An individualized income plan can allow you to see potential income gaps. Then, you can look to fill them with strategies that provide lifetime income. This is especially important if one spouse passes away. An income cliff doesn’t have to dramatically impact your loved one. With planning, you may be able to create another income stream after you’re gone.
How to Avoid An Income Cliff
When circumstances change, our finances may change, too. For example, if you lose your spouse’s pension or other income, your lifestyle may drop. However, if you know how much your income might change, you can plan for it. In fact, planning in advance might allow you to create another income source for your spouse. One way Preservation Financial can help is to provide you a detailed income plan. We can look at where your income is now, and where it might be in the future. Using financial calculator tools, we can review the impact that loss of income may have. More importantly, we can go over possible retirement strategies to help preserve your financial well-being.
Curious if an income cliff may impact your financial future?
Contact us today for your individualized retirement income plan.