Expert Tips on How to Replace Your Paycheck in Retirement

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During your working years, it's easy to take your income stream for granted. You put in hours each week, and a paycheck is regularly deposited into your bank account, helping you to make the mortgage payment, pay taxes and handle other wants and necessities.

But when it comes time to retire, that paycheck disappears. To compensate, you need to make sure you have in place a steady income stream to replace it — and that's not something you want to leave to chance.

Unfortunately, some people do leave it to chance, expecting that Social Security will do more financial heavy lifting than the federal program is designed for.

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When there's the inevitable shortfall, some people may end up making withdrawals from their IRA or 401(k) without any overall strategy for making that money last.

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It's no wonder that such a large percentage of Americans worry about running out of money in retirement. In fact, a survey from Allianz Life found that 64% of Americans worry more about running out of money than they do about dying.

That's no way to approach retirement.

Tallying anticipated expenses

Instead, retirees should have an increasing income plan in place designed to cover at least their necessary expenses and the potential for inflation for the remainder of their lives.

The goal is that, no matter what happens on Wall Street, whether markets are up or down, you will still have a steady income stream.

How do you go about that?

One of the first things you should do is assess your current situation and what your future needs will be.

What monthly expenses do you anticipate having in retirement? Perhaps your mortgage is paid off, and you own your car free and clear. But you will still need groceries. You will still have an electric bill, a water bill, a garbage bill and a host of other expenses.

Those other expenses include taxes. People often think they will be in a lower tax bracket when they retire, but that's not always the case. Tax planning is an integral part of retirement planning.

It's also a good idea to budget for unplanned expenses, such as a medical bill or a car repair. Having money set aside in an emergency fund can help you avoid putting those expenses on a credit card and adding to your debt.

Of course, you probably don't want retirement to be solely about paying bills, paying taxes and saving for worst-case scenarios. Do you plan to travel? Do you have hobbies that cost money? Be sure to include those in your planning.

Add everything up, and this will give you a good idea of how much income you will need each month.

Once that's done, you can examine how you plan to pay for those expenses.

Planning an income stream

In retirement, income may derive from a variety of sources.

One of those is Social Security, but as previously mentioned, Social Security is limited in how much of your retirement expenses it can cover. At best, on average, Social Security will replace about 40% of the annual salary you received just before retirement.

That could leave a significant shortfall between what you are used to receiving from a job each month and what Social Security provides. You may or may not need to fill the entire gap, but you may want to cover a considerable portion of it.

At one time, a pension could help with that, but few people these days have pensions, outside of public school teachers and some other government workers.

Since that is the case, those without a pension should create one for themselves.

One way to do that is through annuities.

A fixed income or fixed index annuity with a guaranteed lifetime income benefit rider, also known as a guaranteed withdrawal benefit, will ensure you have an additional income stream that cannot be outlived.

An income annuity is the only investment that, even when your principal is depleted or goes to zero, your lifetime income stream continues.

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Married couples can elect a joint lifetime income stream, ensuring that when the first spouse passes, the payments continue for the surviving spouse.

Creating a second guaranteed income stream that can't be outlived is a great complement to your Social Security benefits.

Seeking help

Once you have your income plan in place, you don't want to put it on cruise control and ignore it.

You should regularly review the plan to make sure you are on track. Be ready to make adjustments if your circumstances or goals change or if things simply aren't working out the way you anticipated.

Developing an income plan can get complicated, and it's easy to miss things you should consider as you put it together. Find a financial professional who has experience with Social Security, annuities and other retirement-planning tools.

A financial professional can help make sure you cover all the bases so you can put together a plan that will serve your needs — and your spouse's — throughout the length of your retirement.

Ronnie Blair 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.

Disclaimer

This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

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Rick Seiler is the founder and a financial adviser at Seiler Wealth Management, a firm dedicated to helping clients retire with confidence. With more than three decades of experience, Rick specializes in creating personalized strategies for income, investment, estate, insurance and tax planning, as well as Social Security maximization. Every plan Rick builds starts with understanding what matters most to you — your goals, your lifestyle and your peace of mind. He is also certified as a National Social Security Advisor, giving clients insight into how to make the most of their Social Security benefits.