Financial planning is a crucial process for determining the relative importance of specific resources and strategies for retirement. The process usually creates some surprises. In general, clients are surprised by how little additional late-in-life savings support retirement planning goals or how much building emergency reserves supports those same goals. Pensions, on the other hand, are such a powerful force during retirement, they warrant special attention.
Those with pensions most often begin the retirement planning process feeling grateful that they have a pension, as they are becoming more and more aware of how hard it will be to let go of the paycheck they are accustomed to receiving each month from employment. The stable cash flow that pensions provide is extremely helpful in creating sustainable retirements and in hedging the risk of running out of money, but they also have a positive effect on how other resources can be treated. For example, pensions tend to allow recipients to feel more comfortable taking appropriate risk in their portfolios as they transition to retirement, often resulting in more favorable financial gains in the future.
Those pensions that contain an inflation provision are especially favorable in supporting retirement goals. As Meredith Whitney points out in her book, The Fate of the States, the real wages of many people in the work force have been falling for decades. For those with a pension containing an inflation provision, however, this is not necessarily so. With an inflation provision, annual payouts will increase each year along with inflation, while those still in the work force may not enjoy that benefit. Ironically, while working harder is normally the best way to increase one’s income, in the case of pensions with inflation provisions, not working at all turns out to be more profitable.
The decision about when to begin taking pension payments and about how much of those payments to confer on a surviving spouse should be made with a professional. In the case of these important decisions, which can amount to differences of several thousands of dollars, hiring a CERTIFIED FINANCIAL PLANNER™ to help you remedy the situation to perform a pension analysis to determine the most financially favorable approaches will usually end up paying for itself in additional income in the long run.
You are invited to attend the following upcoming events which may be of interest to you:
Wine & Cheese Gathering
The Women’s Roundtable
Saving for Retirement: Never Too Early, Never Too Late
(in the series “Taking Charge of Your Financial Future”)
Wednesday, June 25, 2014, 6–7:30 pm
Click here for more information.