Floor and Upside: Cover Needs With Steady Income

The story: Ruth builds a floor

Ruth compares essential bills with Social Security, finds a gap and sees the ways to close it.

1. Narrator: Ruth lists the must-pay bills: rent, food, insurance, utilities and health care. They come to $3,200 a month (example).
2. Narrator: Ruth’s guaranteed income is Social Security: $2,300 a month (example).
3. Ruth: So $900 of my basics comes out of my savings every month. No wonder a bad week in the market scares me.
4. Narrator: That $900 is Ruth’s essential gap. There are a few ways to close it.
5. Narrator: Delay Social Security, take a pension’s monthly option, line up safe bonds or CDs, or buy an income annuity.
6. Ruth: Then my investments can pay for the fun things and the future.
7. Narrator: Needs on a floor, wants on the upside.

What you’ll learn

1. Find your floor

   Add up your essential bills: housing, food, insurance, utilities and health care. Then add up your guaranteed income: Social Security, pensions and any income annuity. Guaranteed means it pays for life, whatever markets do.

2. Find the gap

   Essentials minus guaranteed income is your essential gap. If it’s zero or less, your basics are covered by income that doesn’t depend on markets. If there’s a gap, savings have to fill it every month, in good years and bad.

   Example: $3,200 of essentials minus $2,300 guaranteed = a $900 monthly gap.

3. Ways to close a gap

   People close the gap by delaying Social Security for a bigger check, taking a pension as monthly income, lining up safe bonds or CDs that come due year by year (a ladder), or buying an income annuity. Lowering an essential bill shrinks the gap too. Each has trade-offs.

4. The upside, and why it calms things

   Money not needed for the floor is your upside: invested for wants, surprises and later years. With a floor in place, a market drop is unpleasant, but it doesn’t threaten rent or groceries. This is a way of thinking, not a product.

Key words

income floor

guaranteed money for needs

upside

invested money for wants and growth

essential gap

needs minus guaranteed income

Common questions

Is an annuity the only way to build a floor?

No. Delaying Social Security, a pension’s monthly option, a ladder of safe bonds or CDs, and lowering an essential bill can all help. Part-time work can bridge a few years. Many people use a mix.

Remember this

Needs on a floor, wants on the upside.

Try it: Compare essentials with guaranteed income

1. Add up your essential bills for a month.
2. Add up your guaranteed monthly income.
3. Subtract to find your essential gap, if any.

No account: list your essential bills and your guaranteed income on one sheet of paper.