It’s Outcome, Not Income, That Should be Stressed in Retirement Planning

ost Americans are pessimistic about how well off they will be financially when they reach retirement.

People have many worries and that's understandable. Their savings may not be what they hoped to have. Pensions for most people are a thing of the past. And many are uneasy about the future of Social Security.

A Gallup poll this year showed that just 48 percent of Americans expect they will have enough money in retirement. Those in their 50s were the least optimistic, with only 42 percent in that age group saying they expect to live comfortably in retirement.

Financial advisors might be able to get those poll numbers moving in a more optimistic direction if they didn't focus so much on income, and paid more attention to outcome.

Certainly, income is a top concern for retirees. But not all income is equal. For example, how much of your retirement income is taxable? Does the total look great at first, but look a little less great once Uncle Sam's share is subtracted?

To improve the odds of a better outcome, some issues that people planning for retirement should focus on include the following.

* Longevity. People are living longer, but many financial advisors don't recognize longevity as a risk. Most plans that I see out there will run out when people are in their early 80s. And most people will say that's no big deal because they don't believe they'll live longer than that But they could be in for a surprise. As an example, take a married couple who are both 65. They face a 63 percent chance that at least one of them will live into their 90s. Retirees who want to eliminate longevity risk should consider implementing a hybrid technique that will create lifetime income that will never run out

* Taxes on Social Security. Many people planning for retirement may not realize that Social Security counts toward their taxable income. If their income exceeds a certain level, they will be taxed. Staying below those income levels could be one option, but many people may not be able to live on such limited income. When planning retirement expenses, be sure to take taxes into account, and discuss with a financial advisor what your options might be for avoiding or at least limiting those taxes.

* Consider working longer. One way to improve your income situation in retirement is to continue working, either full time or part time. That's not possible for everyone because of health or other concerns. But for some people, this can be a solution that allows you to both save more and postpone spending your savings.

It's important that people sit down with a financial advisor who can take all these issues into consideration. You want to make sure that your income results in a positive outcome. *