Use Guaranteed Lifetime Income to Pay for Guaranteed Budget Items

It should be antithetical to depend on non-guaranteed investment income to pay for guaranteed retirement expenses. It’s not just a theory—it’s a major component to your personal psychonomics or retirement happiness to cover reoccurring household expenses. In addition, since expenses in retirement usually go up, your guaranteed income needs to match it. Watch the interview with retirement specialist Steve Bishop.

To build a reliable retirement, you need to construct a firm foundation. A cornerstone in stable retirement design is eliminating a mortgage payment during retirement. One option with intrinsic economic leverage is a home purchase with the home equity conversion mortgage program.

In general terms, you need to be age 65 or older and live in the home as your prime residence for the rest of your life. The program participates up to $625,500 of the home value. As an example: If a married couple purchased a home for $625,500, and both spouses were age 65 they would need around $312,000 down in cash and they have no mortgage payment, but they would still have property tax payments and home insurance premiums to pay. This is a powerful retirement strategy for seniors.

Another retirement cornerstone is to calculate your maximum Social Security income net of taxes for both spouses. Under current government legislation, Social Security is guaranteed for the rest of your life. Then, figure your monthly retirement budget including vacations, birthdays and holiday gifts. After you subtract your budget items from your Social Security income, you may have a monthly deficient. Whatever that deficient is, you need guaranteed income to make up for your budgetary short fall. So you need to determine what lump sum is required to generate guaranteed lifetime income annuity income to cover the deficient.

There are three basic forms of annuities that can generate guaranteed lifetime income: single premium immediate annuity, deferred income annuity or a deferred annuity with an income rider. And since the commodities of living seem to increase every year, you may want to add a cost-of-living rider. Keep in mind the guaranteed lifetime income generated from the annuity contract is only as good as the insurance company who issued the policy. So you need to check out the ratings and financial balance sheet of the insurance company.

By eliminating the mortgage payment and using guaranteed Social Security and annuity income, you can cover your annual domestic spending. This strategy can offer retirees a degree of solace and free up other assets for estate growth, legacy planning and charitable giving.

Syndicated financial columnist Steve Savant interviews retirement specialist Steve Bishop. Right on the Money Show is an hour long financial talk distributed to 280 media outlets, social media networks and financial industry portals.