When you retire, you’re hopefully set for the rest of your life financially, right? Since you don’t need to save any more for retirement, you can just sit back and relax. Not so fast. Even if you’ve been diligent about saving, retirement comes with its own set of financial challenges.
While it’s true you ideally won’t need to save for retirement any longer, you still need to live within your means. And because you aren’t bringing home a regular paycheck from your employer, figuring out your budget can take work.
It’s important for retirees and soon-to-be retirees to establish a comprehensive retirement plan that addresses what your income streams will be and what your costs will be. Here are four things to think about as you start planning your income.
When you retire, your bills won’t just disappear. You’ll still need to pay your car payments and electric bills. As you start planning for your retirement income, consider what your expenses will be in retirement. Your numbers may not be fixed over the course of your retirement, but writing them down during your planning stage will help you decide how much you actually will need in retirement.
Some essential line items include:
You have been dutifully contributing to your workplace retirement plans during your career, but those accounts may be only a single stream in your overall retirement income plan. Governmental programs may provide you set income every month, and your current assets or investments may be restructured or sold to provide drawdown income.
The main sources of income include:
You may also consider gifting as part of your income strategy. Giving away your assets — whether your house or the partial ownership in your business, or something much smaller — to heirs may reduce the amount of taxes you need to pay, thus benefiting your overall retirement income.
You may choose to take a fixed amount from your portfolio on a periodic basis — often monthly. This allows you to maintain your investments while gradually liquidating the funds that you need to pay your bills.
There are many ways to strategize. If, for example, you have a lifetime immediate annuity, you can combine income from that along with your Social Security benefits to hopefully cover essential living expenses like healthcare, food, housing and taxes. That would allow you to use your traditional investment-oriented portfolio to cover flexible income needs, such as travel and entertainment.
A big factor in your plan will be paying taxes on your income. It’s important to budget for this so you have enough income to cover your expenses and Uncle Sam, too.
The most important thing you can do for your retirement is start planning now. Creating your comprehensive plan, which accounts for where you are today and where you want to go, will give you milestones to work toward.
Your plan won’t be permanent as your situation and goals will likely change throughout your retirement. Meet with a financial professional to review your plan and how it’s working for you on an ongoing basis.
Read more about creating a game plan for retirement.