Remember the old ad campaign in which everyone was literally carrying around his or her retirement number?
One guy had his with him as he rode a bike. Another carried his as he jogged. A married couple went to sleep with theirs on the bed between them.
The point, of course, was that every person has one — an amount you need to save “to retire the way you want.”
From just $107.88 $24.99 for Kiplinger Personal Finance
Be a smarter, better informed investor.
Sign up for Kiplinger’s Free 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.
That’s almost always the focus when people talk about retirement: Will I or won’t I have enough?
But to me, the most important number isn’t how much you’ve accumulated — it’s how much you think you’ll spend when you no longer have a paycheck coming in. That’s the starting point for a solid retirement plan.
It isn’t about a big, heavy number you have to carry around with you; instead it’s an ugly six-letter word.
You’ll need a BUDGET.
Not in the sense of limiting yourself, though, or “living within your means.” From a retirement perspective, putting together a budget is about figuring out costs so you know what you’ll be spending.
Once you’ve done that, and you think you’re ready, I highly recommend living on that retirement budget while you’re still working — for 12 or even 18 months — to get a sense of whether it’s realistic.
Makes sense, right? And yet most of the time when someone comes into my office and I ask how much they want to spend in retirement, they have no idea.
Everybody wants to know if they have enough saved, but how do you even begin to answer that question if you don’t know what you want to spend? If you get that wrong, you’ll never know if your “retirement number” was right or not.
When you have your budget set, you have a starting point for your plan.
Next you can start to look at your sources of income.
If you have a pension coming, you’re ahead of a lot of people these days. But, you still have choices to make regarding how to take it. (If you’re married, decisions about lump-sum payouts or survivorships should be made together.)
You’ll also have options regarding how and when you take Social Security. Again, your spouse should be included in any decisions you make. And you’ll want to consider how your choices will be affected by taxes, inflation and longevity.
Income decisions made? Do some math, and figure out if there’s a shortfall.
It’s a simple enough equation: A (the money you’ll spend) - B (the money you’ll bring in) = C (what you will or won’t need to fill the gap).
If you have more cash coming in than you’ll spend, congratulations! But most people come up short; they’re looking to spend more than their pension and Social Security will provide.
If you’re in that group, there are different ways you can make up the difference.
Some people opt for additional guaranteed income to go with their pension and Social Security. They don’t want to worry about whether they’ll have enough every month to spend on the lifestyle they want.
Others are willing to take more of a gamble, using the investments in their portfolio to meet the shortfall.
Once you decide how you feel about that, it will point you to how you’re going to use your money in retirement.
More often than not, the people who come to our office want to talk about their investments. They’ve been programmed that way, and it’s the part of the process they understand best. After all, they’ve been hearing about accumulation, and the importance of their rate of return, since before they signed up for their first 401(k).
But in retirement, success isn’t so much about rate of return. Once you know what you need to live comfortably, it becomes about managing volatility, so you don’t experience any big losses.
It’s time to get with a financial professional who can help you with a solid income plan.
Pull yourself away from figuring out how to pile up money. Seek advice from someone who is experienced in retirement income planning, so you can be sure your plan supports the spending you expect to do.
This sounds easy enough, but it’s rare that I find people who actually have a legitimate written income plan. I equate that with taking a job but not knowing what you’re going to get paid.
You’re preparing to enter a new 20- to 30-year career. Treat it that way. Start at the beginning, educate yourself, and don’t take unnecessary risks.
Then you’ll truly be ready to retire the way you want.
Investment Advisory Services offered through Global Financial Private Capital, LLC.
Kim Franke-Folstad contributed to this article.
The appearances in Kiplinger were obtained through a PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.
-
US-China Trade Hopes Send Stocks to New Highs: Stock Market TodayApple and Microsoft are on track to join Nvidia in the $4 trillion market cap club.
-
A Lesson From the School of Rock About the MarketsIt's hard to hold your nerve during a downturn, but next time the markets take a tumble, remember this quick rock 'n' roll tutorial and aim to stay invested.
-
A Lesson From the School of Rock (and a Financial Adviser) as the Markets Go Around and Around
It's hard to hold your nerve during a downturn, but next time the markets take a tumble, remember this quick rock 'n' roll tutorial and aim to stay invested.
-
I'm a Financial Pro: This Is How You Can Guide Your Heirs Through the Great Wealth TransferFocus on creating a clear estate plan, communicating your wishes early to avoid family conflict, leaving an ethical will with your values and wisdom and preparing them practically and emotionally.
-
To Reap the Full Benefits of Tax-Loss Harvesting, Consider This Investment Strategist's StepsTax-loss harvesting can offer more advantages for investors than tax relief. Over the long term, it can potentially help you maintain a robust portfolio and build wealth.
-
Social Security Wisdom From a Financial Adviser Receiving Benefits HimselfYou don't know what you don't know, and with Social Security, that can be a costly problem for retirees — one that can last a lifetime.
-
Take It From a Tax Expert: The True Measure of Your Retirement Readiness Isn't the Size of Your Nest EggA sizable nest egg is a good start, but your plan should include two to five years of basic expenses in conservative, liquid accounts as a buffer against market volatility, inflation and taxes.
-
New Opportunity Zone Rules Triple Tax Benefits for Rural Investments: Here's Your 2027 StrategyNew IRS guidance just reshaped the opportunity zone landscape for 2027. Here's what high-net-worth investors need to know about the enhanced rural benefits.
-
The OBBB Ushers in a New Era of Energy Investing: What You Need to Know About Tax Breaks and MoreThe new tax law has changed the energy investing landscape with expanded incentives and permanent tax benefits for oil and gas production.
-
Ten Ways Family Offices Can Build Resilience in a Volatile WorldFamily offices are shifting their global investment priorities and goals in the face of uncertainty, volatile markets and the influence of younger generations.
