5 Considerations When Developing Your Retirement Income Game Plan
Saving for retirement is one thing. Finding a way to turn that money into an income stream that will last for decades is another.
Dreaming about what you’ll do in retirement is exhilarating. It’s fun to think about golfing and grandkids, cruising the Rhine or maybe relocating to the sunny South.
Planning how you’ll pay for it? Not so much.
Figuring out how to turn your nest egg into an income stream you can live on for decades is tedious, worrisome stuff that often leads to doing nothing at all. In one study, 43% of Americans surveyed said their No. 1 fear in retirement was the possibility of outliving their savings. And yet many are unwilling or incapable of putting together a retirement income plan that will last 10, 20, 30, perhaps even 40 years. Worse yet, there are many who trust financial professionals who don’t specialize in this area of financial planning, either!
Sign up for Kiplinger’s Free E-Newsletters
Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.
Profit and prosper with the best of expert advice - straight to your e-mail.
There are so many theories floating around out there regarding the best ways to save and invest, so it’s no wonder the average consumer is confused. Depending on the strategy you choose , it could mean a difference of thousands of dollars in income EVERY MONTH. Or worse — you might not have enough money to live on in the later years of your life.
Here are five considerations to developing a retirement game plan:
1. Prepare for inflation.
Inflation is often overlooked in financial planning. When it comes to retirement income planning, you’re making decisions today that can affect you decades down the road. If you don’t have a plan for income, you could bank on an income stream in a few decades that won’t cover your costs. Usually 3% is the recommended inflation percentage to plan for. Your Social Security benefits may see some adjustments from year to year, but IRAs, pensions and other retirement vehicles typically won’t have any built-in protections against inflation. So, it’s up to you and your financial professional to determine how much you’ll need at different stages of your life, and then how and when you’ll turn on your various income streams to make the most of what you have.
2. Plan for taxes.
If you don’t want to think about your retirement savings, it’s very unlikely you want to think about taxes. Many people underestimate the amount of planning required to avoid year-end surprises. Or they pay taxes on money they’re not using, which is often a big mistake. You should be as cognizant of changes to your tax bracket as you are to changes in your weight. Don’t count on your tax preparer to alert you to the long-term strategies that can save you. Rather, it’s recommended you work with a financial planner who considers taxes in their planning and a CPA or accountant who engages in tax planning.
3. Separate the expenses you need to cover in retirement into two categories.
In retirement, you’ll have your fixed expenses and your variable expenses. Fixed expenses are things you must cover every single month no matter what, such as your water bill, your electric bill and grocery bill. Your variable expenses are things you’d like to pay for, such as dining out, green fees and going out to movies. When deciding which vehicles you’ll use to cover those expenses, it’s recommended you use a reliable income stream for your fixed expenses, and you can use variable income streams with larger upside potential for your lifestyle expenses.
4. Know how much of your retirement income is variable.
In retirement, you don’t want to have to worry about whether you’ll be able to pay your water bill, your grocery bill or cellphone bill. When considering what retirement income strategy to employ, ask the question, “How much of this income is consistent, and how much could fluctuate?” We find very often that people go into retirement with almost all of their money at risk and no planned income that is reliable or consistent. This can spell disaster down the road.
5. Work with a “retirement” coach.
Make sure you work with someone who specializes in retirement income planning. A traditional financial professional can help you through the accumulation phase of your financial life, but when you’re nearing the preservation and distribution phase, you need someone who can educate you on all the options available. Look for someone who stays up to date on the growing number of income strategies and understands there is no such thing as one size fits all.
As politics and the economy grow ever more unpredictable, both in the U.S. and globally, you must take charge of your own future. Educate yourself: Make sure you’re working with an adviser who focuses on the areas you need. Don’t make the same mistake many Americans do, which is spending more time planning for their next vacation than they do their retirement.
Kim Franke-Folstad contributed to this article.
Jeff Dixson offers securities and advisory services through Madison Avenue Securities, LLC (MAS), member FINRA & SIPC, A Registered Investment Advisor. MAS and NW Financial & Tax Solutions are not affiliated companies.
Jeff Dixson is president and CEO at Northwest Financial and Tax Solutions Inc. and is an Investment Adviser Representative and insurance professional. He hosts a weekly radio show, "The Jeff Dixson Show: The Retirement Coach," and is the author of "Winning the Retirement Game."
-
Use An iPhone? You May Be Hearing From A Class-Action Lawsuit Group
A handful of suits against the iPhone maker seek to crack down on everything from app store purchases to messaging.
By Keerthi Vedantam Published
-
Capital One/Discover: What's In Their Wallet For You?
Push back on Capital One's planned merger with Discover is growing with one group of consumer advocates calling for a public hearing.
By Keerthi Vedantam Published
-
Should You Enroll in Medicare if You Still Have a Job?
This question is being asked more than ever these days, so here’s what you can do when it comes to making Medicare decisions while you’re still working.
By Jae W. Oh Published
-
Three Big Ways That Life Insurance Can Be a Lifeline
Life insurance not only provides a safety net for loved ones and leaves behind a lasting legacy, but the cash value can also help during financial hardship.
By Steve Sugumele Published
-
Romance Scams That Target Older Adults Rising: What to Do
Here are some tips to help you avoid falling for a scam, especially when a scammer tries to prey on your affection.
By Patrick M. Simasko, J.D. Published
-
Lessons Learned From Britney Spears’ Financial Conservatorship
The pop star’s recent memoir reveals the toll her involuntary conservatorship took on her and spotlights the drawbacks of these legal arrangements.
By Stacy Francis, CFP®, CDFA®, CES™ Published
-
Four Things to Know About Managing a Loved One’s Finances
Figuring out when it’s time and knowing how to talk about it are just the start. You also need info about estate plans, insurance and health care decisions.
By Tony Drake, CFP®, Investment Advisor Representative Published
-
Three Tax-Smart Strategies for Real Estate Investing
Opportunity zones, Delaware statutory trusts and real estate income funds can help investors maximize gains and mitigate taxes.
By Dwight Kay Published
-
Can Language Apps Teach You to Speak a Foreign Language?
Your expectations might be too high if you think an online language platform can teach you to have a meaningful conversation in a foreign language.
By H. Dennis Beaver, Esq. Published
-
Avoid Surprises: Don’t Procrastinate on Your Taxes
You really should start thinking about next year’s taxes immediately after filing this year’s. Better tax efficiency could save you some serious dough.
By Jared Elson, Investment Adviser Published