Retirement Income Planning
Now that you have reached retirement, do you know what your income needs are? Will your income cover the retirement lifestyle that you have dreamed about? Will your income stream terminate before you do?
Where to Start
Your first step is to estimate how much income you'll need to fund your lifestyle and retirement goals. Calculating your expected annual expenses is a good place to start. Separate your expenses into those that are necessary and those that are discretionary to determine how much of your income should come from low-risk investments and how much from guaranteed sources.
When determining your retirement needs, you can't just estimate how much annual income you need. You also have to estimate how long you'll be retired. Your planned retirement age isn't the only factor that determines how long you'll be retired. The other important factor is your lifespan. You may run the risk of outliving your savings.
Now that you have established what your expenses will be in retirement, you need to find out where the income is going to come from. What sources of retirement income will be available to you?
Covering Necessary Expenses
Social Security, Pensions and Annuities are income sources that you can count on. Knowing that all of your necessary expenses are covered by guaranteed income helps create a comfortable feeling. What percent of your necessary expenses, those that you really have to pay, is covered by income you can count on?
Converting Investments into Retirement Income
Your expenses that are not covered by guaranteed income may have to be covered by investment income. During your working years, you've probably set aside funds in retirement accounts such as IRAs, 401(k)s, or other workplace savings plans, as well as in taxable accounts. Your challenge during retirement is to make those investments generate an ongoing income stream that will cover your expenses throughout your retirement years.
The retirement lifestyle you can afford will depend not only on your assets and investment choices, but also on how quickly you draw down your retirement portfolio. Figuring out an appropriate initial withdrawal rate is a key issue in retirement planning and presents many challenges. Withdrawing too much, particularly in the beginning, may result in running out of money later in life.
You may have assets in accounts that are taxable (e.g., CDs, mutual funds), tax deferred (e.g., traditional IRAs), or tax free (e.g., Roth IRAs). Given a choice, which type of account should you withdraw from first? The answer is--it depends. This decision is a complicated one.
Common Risks
When it comes to planning for your retirement income, it's easy to overlook some common risks that may affect how much you'll have available to spend. You need to consider how your retirement income will be impacted by investment risk, inflation risk, catastrophic illness or long-term care, and taxes.
Different types of investments carry with them different risks. Sound retirement income planning involves understanding these risks and how they can influence your available income in retirement.
The effect of taxes on your retirement savings and income is another often overlooked but significant aspect of retirement income planning. Without forethought, taxes can needlessly eat into your income, significantly reducing the amount that you have available to spend in retirement.
Designing a Retirement Income Plan
Your retirement income plan should be individually designed and based on your “Comfort Zone.” Some people’s “Comfort Zone” will require more guarantees, while others will be comfortable with more risk. Either way, Klauenberg Retirement Solutions, LLC has a Retirement Income Plan to help fit all “Comfort Zones.”
What is Your Comfort Zone?
Do you know how much risk you are comfortable with?
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Learn about Social Security
A wise strategy for claiming Social Security Benefits may result in additional retirement income
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Income for Life
The Income for Life Model® is an investment strategy with the objective of providing inflation-adjusted income for life. The strategy allocates assets in a manner that places a heavy emphasis on guaranteed* streams of income that continue over long periods of time. This is extremely important because Americans are increasingly being forced to rely upon their own retirement savings to create the retirement income they will need. With longevity increasing and interest rates low, creating durable streams of retirement income can be challenging.
The Income for Life Model provides a sound foundation for creating that income.
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