retirement

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!

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.

About the Author

Jeff Dixson, Investment Adviser

Founder, President and CEO, Northwest Financial and Tax Solutions

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."

Most Popular

Refunds for $10,200 Unemployment Tax Break to Begin This Month
Coronavirus and Your Money

Refunds for $10,200 Unemployment Tax Break to Begin This Month

The IRS will start issuing automatic refunds sometime in May to people eligible for the unemployment benefit tax exemption.
May 1, 2021
The Benefits of Working Longer
Empty Nesters

The Benefits of Working Longer

Delaying retirement for a couple of years—or even a few months—is the most effective way to improve your retirement security.
April 29, 2021
10 Dividend Growth Stocks You Can Count On
dividend stocks

10 Dividend Growth Stocks You Can Count On

What should investors prioritize in dividend growth stocks? A history of aggressive payout expansion, and the ability to generate enough cash to keep …
May 3, 2021

Recommended

14 Social Security Tasks You Can Do Online
retirement

14 Social Security Tasks You Can Do Online

Why visit a government office to get your Social Security business done? You can do much of that online.
April 2, 2021
9 Tax Deadlines for May 17 (It's Not Just the Due Date for Your Tax Return)
tax deadline

9 Tax Deadlines for May 17 (It's Not Just the Due Date for Your Tax Return)

Between due dates for extension requests, IRA or HSA contributions, and other deadlines, there's more to do by May 17 than just filing your federal in…
May 4, 2021
Saver's Credit: A Retirement Tax Break for the Middle Class
Tax Breaks

Saver's Credit: A Retirement Tax Break for the Middle Class

Your retirement contributions could be the key to a lower tax bill.
May 3, 2021
Estate-Planning Your Stuff with T. Eric Reich
Empty Nesters

Estate-Planning Your Stuff with T. Eric Reich

What to do with the house, the vacation house and the china? We talk with a financial adviser who's got some wise counsel. Also, who makes up the so-c…
May 2, 2021