How to Generate Retirement Income
Calculate your expected Social Security benefit., Purchase certificates of deposit., Buy bonds., Purchase an immediate fixed annuity.
Step-by-Step Guide
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Step 1: Calculate your expected Social Security benefit.
Financial advisors recommend that you cover your basic living expenses with guaranteed retirement income, such as Social Security.
You should calculate how much you are likely to get at your retirement age.
Visit the Social Security Administration’s website at https://secure.ssa.gov/RIL/SiView.do.
You can create a username and password.
You are entitled to start receiving benefits at age
62.
However, the amount you receive will be less than if you wait.
You will earn more if you wait for your full retirement age.
This age differs depending on when you were born.
If you were born in 1960 or later, then your full retirement age is
67.
If you were born in 1954, then your retirement age is
66.If you defer receiving Social Security until age 70, your monthly benefit will likely be even greater.
Generally, you can get a credit of 8% per year that you wait past your full retirement age.
Consider your “break even” point.
This is the point when your cumulative income from starting income at an older age becomes larger than your cumulative income from starting at a younger age.Compare this break even point with your life expectancy.
If you are in poor health, you might want not want to wait to receive benefits. -
Step 2: Purchase certificates of deposit.
You can buy a CD from a bank.
It is insured by the Federal Deposit Insurance Company.
CDs can be issued in any denomination and have different maturity dates when you can cash them in.However, the longer you hold your CD, the higher the interest rate will be.CDs are very safe.
However, they don’t generate as much income as other investment options.
As with all investment, you trade must accept greater risk for a greater return on investment.
You can withdraw money early from a CD, but you’ll pay a penalty. , A bond is a debt instrument issued to raise capital.
As the purchaser, you are entitled to payment on the maturity date for more than the face value of the bond.
Bonds are issued by governments as well as by private businesses.Government bonds are generally safer than private business bonds (although this depends on the government and the business).
The United States Treasury bonds are the least risky.
Bonds are riskier than CDs, so they provide more income.
However, you might not be able to generate sufficient income with bonds.
Accordingly, bonds can be a hedge against riskier investments but they probably can’t be your only investment.
If you are in a higher tax bracket, you might want to consider municipal bonds, as they are usually tax-free. , An annuity is a contract from an insurance company.The company sells you a contract, which entitles you to guaranteed (fixed) monthly income for life (or for a set amount of time that you choose).
Annuities provide reliable income you can use to cover basic living expenses.
The amount paid out to you will depend on a variety of factors, such as your age and sex, as well as the amount of money you spend to buy the annuity.
For example, a 65-year-old man who invests $200,000 in an annuity can expect to receive a little over $1,000 per month for life.
If you buy an annuity, you can’t dip into the principal when you want it.
Instead, you get only the regular monthly payment as agreed in the contract.
Because annuities will depreciate due to inflation, you should consider an inflation-adjusted annuity.
However, it will have a lower initial payout.Search wisely for an annuity.
They aren’t protected like bank savings accounts, so if the insurer goes bankrupt during an economic downturn, you lose your money.
Only buy from an insurer that has the highest rating from Standard & Poor’s and Moody’s. -
Step 3: Buy bonds.
-
Step 4: Purchase an immediate fixed annuity.
Detailed Guide
Financial advisors recommend that you cover your basic living expenses with guaranteed retirement income, such as Social Security.
You should calculate how much you are likely to get at your retirement age.
Visit the Social Security Administration’s website at https://secure.ssa.gov/RIL/SiView.do.
You can create a username and password.
You are entitled to start receiving benefits at age
62.
However, the amount you receive will be less than if you wait.
You will earn more if you wait for your full retirement age.
This age differs depending on when you were born.
If you were born in 1960 or later, then your full retirement age is
67.
If you were born in 1954, then your retirement age is
66.If you defer receiving Social Security until age 70, your monthly benefit will likely be even greater.
Generally, you can get a credit of 8% per year that you wait past your full retirement age.
Consider your “break even” point.
This is the point when your cumulative income from starting income at an older age becomes larger than your cumulative income from starting at a younger age.Compare this break even point with your life expectancy.
If you are in poor health, you might want not want to wait to receive benefits.
You can buy a CD from a bank.
It is insured by the Federal Deposit Insurance Company.
CDs can be issued in any denomination and have different maturity dates when you can cash them in.However, the longer you hold your CD, the higher the interest rate will be.CDs are very safe.
However, they don’t generate as much income as other investment options.
As with all investment, you trade must accept greater risk for a greater return on investment.
You can withdraw money early from a CD, but you’ll pay a penalty. , A bond is a debt instrument issued to raise capital.
As the purchaser, you are entitled to payment on the maturity date for more than the face value of the bond.
Bonds are issued by governments as well as by private businesses.Government bonds are generally safer than private business bonds (although this depends on the government and the business).
The United States Treasury bonds are the least risky.
Bonds are riskier than CDs, so they provide more income.
However, you might not be able to generate sufficient income with bonds.
Accordingly, bonds can be a hedge against riskier investments but they probably can’t be your only investment.
If you are in a higher tax bracket, you might want to consider municipal bonds, as they are usually tax-free. , An annuity is a contract from an insurance company.The company sells you a contract, which entitles you to guaranteed (fixed) monthly income for life (or for a set amount of time that you choose).
Annuities provide reliable income you can use to cover basic living expenses.
The amount paid out to you will depend on a variety of factors, such as your age and sex, as well as the amount of money you spend to buy the annuity.
For example, a 65-year-old man who invests $200,000 in an annuity can expect to receive a little over $1,000 per month for life.
If you buy an annuity, you can’t dip into the principal when you want it.
Instead, you get only the regular monthly payment as agreed in the contract.
Because annuities will depreciate due to inflation, you should consider an inflation-adjusted annuity.
However, it will have a lower initial payout.Search wisely for an annuity.
They aren’t protected like bank savings accounts, so if the insurer goes bankrupt during an economic downturn, you lose your money.
Only buy from an insurer that has the highest rating from Standard & Poor’s and Moody’s.
About the Author
Cynthia Allen
Professional writer focused on creating easy-to-follow hobbies tutorials.
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