Fewer than half of Americans have determined how much they’ll need to save for retirement. To make matters worse, in 2014, roughly 30 percent of those working in private industry with access to a retirement savings plan such as a 401(k) did not participate in the plan, according to the U.S. Department of Labor.

Many people mistakenly believe that Social Security will pay for all or a large part of their retirement needs. The reality is that the average retired worker receives only $1,336 per month in Social Security benefits and the median income of the four-fifths of fully retired people age 65+ was $18,096 in 2014. And retirement income is increasingly needed not only to support the immediate household but also to provide support to adult children and aging parents.

Even if you are over 50, it’s not too late to plan for income in retirement. There are many ways to build a “floor” of guaranteed retirement income using a combination of Social Security, employer-based or self-employment retirement plans, savings and investments such as annuities, reverse mortgages, and other financial options. In this article, we’ll share our top retirement planning tips and give you an overview of some of the ways you can create guaranteed retirement income.

Tips for Retirement Preparation

Guaranteed income in retirement doesn’t just happen—it requires careful planning, even if you are counting on Social Security and a pension to provide for all your needs. Here are some practical tips to help you get started (or stay on track if you’re already planning).

Save, Save, Save - Stick To Your Goals:

If you’re not saving, it’s not too late to start, and if you’re already putting money away, keep doing it! Make saving a priority. Set a target of X$ or X% of your salary and stick to it. You’d be amazed how quickly you can accumulate extra savings by bringing your lunch once or twice a week, brewing your own premium coffee rather than stopping at a pricey coffee bar, and cutting back on costly habits such as smoking. You’ll be healthier too!

Know How Much Money You'll Need In Retirement:

This sounds much easier than it is. Some sources say you’ll need at least 70 percent of your pre-retirement income; if you’re a lower earner, you’ll need 90 percent, just to maintain your current standard of living. Undoubtedly certain expenses such as work clothing, commuting-related automobile costs, eating out, etc., will decline. However, one of the biggest expenses retirees face is healthcare, despite Medicare coverage. Not counting the costs of long-term care or most dental and vision, the estimated lifetime cost for co-pays, deductibles, and other out-of-pocket healthcare spending can total $245,000 for a 65-year-old couple, according to Fidelity Investments. That’s up 29% in 10 years—11% between 2014 and 2015. Fidelity also estimates that healthcare costs are rising between 4% and 5% a year.

Take Advantage of Employer-Based Pension & Retirement Savings Plans:

It’s amazing that nearly a third of Americans who are eligible to participate in employer-sponsored pension or retirement savings plans choose not to. If you are covered by a traditional pension plan, do your homework and find out how it works. Many companies now provide an annual statement that details how much your pension benefit is worth. If you have an employer-sponsored savings plan such as a 401(k), contribute as much as you can, even if your employer does not contribute. These contributions lower your adjustable gross income, thereby lowering your income taxes.

Identify Other Financial Resources:

You may have other assets that you might not think of as financial resources, including death benefits from insurance policies, Social Security survivor’s benefits, healthcare coverage, disability, and liability insurance—even auto and home insurance. These resources can offer some measure of financial protection in case of illness, accidents, or other unforeseen situations that affect your financial stability in retirement.

Diversify Your Funds To Balance Growth & Risk:

In addition to pensions, employer-sponsored savings/retirement plans, Social Security and other income sources, you should also consider investments such as IRAs, savings plans for self-employed individuals, annuities, mutual funds, and more. Putting your money in different products—also called asset allocation—spreads risk, can produce different rates of return, ensuring that you have a mix of ‘liquid’ and longer-term growth investments. A financial planner can help you investigate and evaluate the many investment options available today and select those that fit your goals and risk tolerance.

Where To Put Your Money

Ask five of your friends and you’ll get five different answers about the best way to ensure guaranteed retirement income. In the end, the answer depends on several factors, including (but not limited to):

• Age/years left before you retire
• The amount you can contribute to building your nest egg
• Risk tolerance
• Market stability/general economic conditions
• Track record of the investments you are considering
• The expectation of future inflation rates

When people think about investing, they typically think of certificates of deposit, mutual funds, bonds, real estate, and stocks. Generally, the younger you are, and the more risk you can afford, the more of your savings you might think about investing in stocks. If you are older or less willing or able to sustain losses, you may need a more stable, lower-growth investment.

One option we like for building guaranteed retirement income is an annuity. While annuities come in many ‘flavors,’ they are all insurance products that you pay for upfront and that provide guaranteed income for a defined period, typically 10-15 years or until the end of your life. Depending on the annuity structure, you can receive payments on a weekly, monthly, or annual basis.

When you purchase a non-qualified annuity, you enter into a contract with an insurance company that calculates the amount of monthly income they can provide to you based on:

• Type of annuity (fixed, variable or inflation-indexed; immediate or deferred-income);
• Term of the annuity (for life, for a set term; for an individual or for the individual and his spouse);
• Age and gender of the insured (important for calculating life expectancy).

In addition to a steady, guaranteed income stream, and a guaranteed (or predictable) rate of return, annuities offer deferral of income taxes while your cash value is growing. Earned interest is tax-deferred, allowing your cash value to grow at a faster rate. You pay income taxes only on any interest the annuity earned once you start withdrawing your guaranteed income.

Unlike CDs and IRAs, annuities have a built-in provision that allows you to withdraw a portion of your money every year—generally up to 10 percent of the account’s value; some allow you to withdraw earned interest each month.

Some annuity carriers offer products that can provide you access to the cash value if you are hospitalized, have a life-threatening illness, are subject to a permanent stay inside a nursing home. You can structure an annuity to pay in one lump sum or out over a fixed term, such as monthly, quarterly, semi-annually, or annually, any of which can spread out any income tax.

Keep in mind that annuity guarantees are based on the claims-paying ability of the insurance company that issues the annuity. So if you’re considering an annuity, check out the insurance company’s rating. Annuity Alliance has licensed professionals to assist you in finding an annuity product in your best interest.