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Thursday, June 5, 2014

How costs and income generators impact retirement

Negative effects of retirement planning fees
Financial planning expenses reduce available retirement income
By Ed Dressel

If you are trying to maximize your retirement income, one of the most crucial areas to focus on in regards to your IRA and 401(k) income is your insurance and investment costs, which people sometimes overlook or tend to underestimate. According to a study that was conducted by the Society of Actuaries (SOA) and the Stanford Center on Longevity (SCL), these costs are very important and even seemingly minor charges can impact how much retirement income you will generate. You may want to consider using high-quality retirement planning software or work with advisors utilizing such tools in order to help you reduce the costs associated with generating retirement income and forecast growth in a more accurate and efficient manner.

Make the right decision

When you take advantage of the best income generator, you can look forward to a better retirement. A post on CBSNews.com outlines ways to ensure that you select an ideal retirement income generator and get the best deal on that type of financial product. When it comes to income generation, your decision will play a critical role in how much money you will have throughout retirement.


Investors have a lot of options when it comes to selecting a retirement income strategy, some of which include:
  • Systematic Withdrawals - usually associated with IRAs and 401(k)s. Systematic withdrawals are often set up using the "four percent rule," which means that you take out four percent of your assets on a yearly basis and also adjust upwards each year for inflation. This plan gives one a 90 percent chance that there will be retirement income for roughly 30 years.
  • Immediate Annuities - typically a fixed dollar amount. Immediate annuities ensure that you will receive your retirement income regardless of how long you live or what happens in the markets.
  • GMWB Annuities - hybrid products that offer some protection as well as some potential increase. These can allow you can enjoy the perks of both immediate annuities and systematic withdrawals.

In order to benefit from the strategy that works best for you, it is important to thoroughly evaluate them and their associated costs. With retirement planning software and future retirement paycheck analysis, you can develop a solid understanding of your situation and which strategy will work best for you.


to the SOA/SCL study, wise investors now have a better idea of how much their retirement income could grow with different generators. For instance, there is data on six different generators that shows the differences over a 30 year period for a couple that is 65 years old and has $100,000 in retirement savings.

With systematic withdrawals, the report stated that after 20 years, income could be boosted by as much as 21 percent. With regards to immediate annuities, thanks to competitive bidding you could see income increased by 10 to 20 percent. Finally, GMWB annuities could offer a 19 percent increase after 20 years.

Regardless of which method will work best for you, be sure to capitalize on everything that retirement planning software and an ideal income generator can offer.

About the author: Ed Dressel is a financial planning consultant who writes on topics related to Ask Trak calculators, Ask Trak is a financial planning software development company based in Dallas, OR.

Image license: Chris Potter, CC BY-SA 2.0