Third, while many fear that Social Security will disappear completely, this seems highly unlikely given the popularity of the program. However, changes to the program are inevitable and may include raising the retirement age, lowering payments, and/or increasing the amount of Social Security tax paid. The bottom line is you should expect Social Security to provide an income of $20,000 to $40,000, at least in the latter half of your retirement years.
Explore This IssueACEP Now: Vol 33 – No 06 – June 2014
Other sources of income include pensions, the income of a spouse who continues to work after you retire, inheritances, and rental property. Each of these can be used to reduce the amount of income required from your portfolio.
Once you have determined your expenses and matched them against other sources of income, you may find that your portfolio is not large enough to support your remaining needs. There are a couple of options to make up the difference, but both involve giving up control of assets.
The first is to use a portion of your portfolio to purchase a single premium immediate annuity (SPIA). This is an insurance contract where you pay the insurance company a lump sum of money and, in exchange, the company pays you set amount of money each month for the rest of your life. While many annuities are complicated high-expense products designed to be sold and not bought, SPIAs are a straightforward and competitively priced way to purchase a pension. Unlike life insurance, which becomes more expensive as you get older and sicker, SPIAs become less expensive as you age and develop illnesses. The major benefit of a SPIA is that, unlike portfolio withdrawals, the income is guaranteed (although when you die, your heirs do not receive anything). A SPIA purchased on a healthy 70-year-old male currently pays about 8.3 percent per year, more than twice as much as the safe withdrawal rate of 4 percent.
Another method of increasing income is to use a reverse mortgage. While this industry has been appropriately maligned for high fees and inappropriate sales practices, a reverse mortgage allows you to convert your home equity into income while staying in your home as long as you are able.
A better option for most doctors facing a retirement shortfall is to work a few more years. A few more years of work, even part-time work, can make a huge difference in your spending level in retirement. Working longer allows for more savings, more time for prior savings to compound, and fewer years in which your portfolio must support you. Five more years of work could increase retirement income by 80 percent or more.