A Financial Adviser's Guide to Solving Your Retirement Puzzle: Five Key Pieces

If retirement is drawing near, you may be pondering a dizzying number of questions.

• When exactly should I retire?
• How much money will I need to retire comfortably?
• What will I need monthly to live my dream retirement?
• What if I outlive my money?
• What investments should I tap into first?
• Am I certain my assets will go to the right people or charitable organizations when I’m gone?

If you are looking for quick-and-easy, one-size-fits-all answers to those questions, then you are in for disappointment. The answers vary from person to person. Everyone’s retirement needs are different, and defining them is the first step to putting the puzzle pieces together.

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If you are struggling to come up with answers that are right for you, there are things you can do to bring more clarity to your personal situation. Let’s take a look at a few.

Know your retirement needs

People often think they will need less money in retirement than they did during their working years — and perhaps that’s true in some cases. But the amount of money you need to live comfortably will depend on what kind of retirement lifestyle you envision.

A homebody who gardens in the backyard and meets friends once a week at a coffee shop will need less money than someone who plans to travel frequently to places they have never visited.

Look at current monthly expenses and then think about what retirement means for you.

• How active do you expect to be?
• What expenses will you no longer have, such as gas for commuting?
• What new expenses might you incur, such as more time spent on hobbies?
• Do you want to make sure there is still money in your accounts when you are gone so you can leave a legacy to your children, grandchildren or a favorite cause?

Coming up with a monthly goal is paramount.

Know where your money will come from

Think about the sources of income you will have in retirement. They could include Social Security, a pension, retirement accounts such as IRAs or 401(k)s, and other investment accounts.

Social Security will provide a regular monthly payment for the rest of your life, but the amount depends on a few factors, including when you claim your benefit. You can take it as early as age 62, but at a reduced amount.

If you postpone claiming until you are 70, you can boost the amount significantly. A Social Security Administration publication on the topic gives a good explanation of how this works.

The publication uses as an example of someone whose full retirement age is 67 and whose monthly benefit is $2,000. If that person claimed Social Security at 62, the monthly benefit would instead be $1,400. If they waited until age 70, the amount would be $2,480.

Avoid drawing down your savings too quickly

Most retirees will need to tap into their savings to help make ends meet, but you need to be careful about how much you withdraw each year.

In the past, people often made use of the 4% rule, which suggested withdrawing that percentage each year with a little extra added each year to account for inflation. For example, if you had $1 million in your account, you could withdraw $40,000.

The 4% rule doesn’t always hold up, though. Carefully consider how much you will need to withdraw to fill the gap between your retirement lifestyle needs and the amount of income you have coming from Social Security, a pension or other sources.

Have a game plan in place to avoid running out of money

People are living longer, and retirement can last upwards of 20 to 30 years. You want to have a plan in place that will help you avoid seeing your savings disappear.

Many of our clients express concern about that happening, which isn’t surprising because 66% of Americans fear they will run out of money in retirement, according to a GOBankingRates survey.

In addition to being prudent with the pace of your withdrawals from retirement accounts, there are other steps you can take to limit the odds of outliving your retirement savings.

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A variety of tax strategies, for example, can help you reduce the amount you owe to Uncle Sam, which in turn keeps more money in your pocket.

Be sure your investments generate income, not just growth

A diversified portfolio remains most important, even in retirement. Although you want to reduce your risk at this stage of life, investments such as stocks and mutual funds can provide some growth.

But you also want investments that will generate income, supplementing Social Security and any pension you might have.

For example, insurance vehicles such as annuities can provide a steady and reliable income stream for the rest of your life and CD ladders can provide stable interest. A variety of other income-producing investments can help provide stable, supplemental income for retirement.

It can feel overwhelming to try to sort through all these questions. There is one more thing to think through. Consider consulting with a financial professional who specializes in retirement and income planning and that can help you make sure your plan is as solid as possible.

This person can explain the ins and outs of all the topics covered here, review your financial situation with you, and help you develop strategies that meet your individual needs.

As I mentioned before, what’s right for one retiree isn’t always right for another because so many factors come into play, including your finances, your lifestyle, your goals, your health and your desire to leave a legacy.

You don’t want to leave any of that to chance.

Ronnie Blair contributed to this article.

Advisory services offered through Woloshin Investment Management, LLC, an Investment Adviser registered with the U.S. Securities and Exchange Commission. Registration does not imply a certain level of skill or training.

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.

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