Prioritizing Personal Expenses During Retirement: A Guide to Selfish Spending Strategies
In the world of retirement planning, securing a steady stream of income is paramount. One strategy that has gained traction is the "me-first" or flooring method, a savings-drawdown strategy designed to ensure all essential retirement expenses are covered.
The flooring method offers a guaranteed income that covers essential expenses such as housing, healthcare, insurance, transportation, food, toiletries, and apparel. This consistent income provides peace of mind, reducing emotional reactions to stock market volatility. Essential expenses are the foundation, or the 'floor', upon which the rest of your retirement spending can be built.
To implement the flooring method, start by determining your essential budget. Next, ascertain how much Social Security and any pensions cover. The remaining amount can be annuitized, a process that converts a lump sum into a series of regular payments.
Annuities, a popular option, come in two main varieties: immediate income annuities and deferred income annuities. Parrish, for instance, has a Qualified Longevity Annuity Contract (QLAC) that provides him with monthly income when he turns 75.
However, it's crucial to remember that most investments behind the flooring method do not grow with inflation. Also, annuities can have high fees, including administrative costs and commissions, which can affect payouts. Therefore, thorough research or seeking help from a trusted financial adviser is essential when shopping for annuities.
A bond ladder strategy can also be used to create a source of guaranteed income. For instance, the LifePath Paycheck product offered by BlackRock allows for rolling over money from a 401(k) and depositing it in a savings or brokerage account.
US insurance companies offering Deferred Income Annuities (DIAs) that can be combined with "me-first" or "flooring" methods include Allianz, Athene, Lincoln Financial Group, and Clear Spring Financial. These companies are known for their flexible deferred annuities and income options fitting these strategies.
By flooring your essential expenses in retirement, you ensure safety and security for your retirement spending. This approach allows retirees to budget and manage their monthly expenses, reducing stress over market fluctuations. Nick Nefouse, global head of retirement solutions and head of LifePath at BlackRock, states that the flooring rule helps everyone, providing peace of mind during market downturns.
In conclusion, the "me-first" or flooring method offers a reliable way to secure your essential retirement expenses, providing a solid foundation for your retirement spending. Always remember to conduct thorough research or seek professional advice to find the strategy that best suits your unique circumstances.
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