Has your life ever experienced a plot twist? Things not going according to plan is a normal part of our existence — and this applies to retirement, as well. But with proper planning, you can have the income you need during your post-work years.
While every individual’s retirement is different, they all require one thing in common: income to provide for expenses. Retirement income planning refers to the process of strategizing to ensure you have the necessary income stream to cover every possible expense.
What expenses may come up in retirement? Picture three “buckets” of expenses:
- Essential, day-to-day expenses such as housing, food, utilities, taxes and health care
- Negotiable or one-off expenses, such as taking that overseas vacation, purchasing a big-ticket item, or paying for your daughter’s wedding
- Long-term necessary expenses, such as long-term care
Paying for these things takes a combination of the right investment strategies and withdrawal strategies in your retirement planning. Here are some tips to help you plan for the income you need in retirement.
Plan for a long retirement
Life expectancies have continued to increase, and it’s highly possible that your retirement could last 20 to 30 years. With that comes the threat of outliving your retirement savings but if you plan accordingly and take a potential long retirement into account, you’ll be much more prepared.
Use a diversified income plan for known expenses
Fixed income provides a steady stream of income that you can count on. Because this income is guaranteed, it’s best used to cover those day-to-day expenses. You know what’s coming in every month, and can plan your expenses accordingly.
Most people will fund their retirement from a mix of income sources. These may include pensions (for the lucky few who still have them), Social Security, bond ladders, and annuities. In addition, once you reach age 72, you’ll likely have income from required minimum distributions (RMDs) from your traditional IRA, 401(k) or other retirement account.
Keep investing to keep earning
Although your portfolio makeup will necessarily change as your time horizon and risk tolerance decrease, it’s important to maintain a diversified portfolio even in your retirement years. Growing your savings is critical for combating inflation and helping you prepare for major long-term expenses — along with those twists, turns, and unexpected needs that will inevitably pop up.
Investing in a mix of stocks, bonds, and cash means you can use the investment returns to cover or save for big-ticket expenses in retirement, since you’ve already carefully covered your recurring monthly expenses using funds from fixed income sources.
Your wealth advisor will continue to be a key resource in determining which investments are best suited to your growth potential, as well as those that will help mitigate the effects of inflation and help you prepare for the unexpected.
Consider whether you want to preserve some principal
If you’d like to leave money to children or charity, or ensure that you have untouched principal for unforeseen circumstances, you may want to consider this in your income planning. On the other hand, if your aim is to use all your savings during retirement, you can structure your income plan with this in mind. Either way, having a solid understanding of your goals is necessary to devise an income plan that is right for you.
Have more questions about retirement income planning? We’re here to help you understand how to ensure your plan includes the right mix of income-producing investments, determine when to start taking Social Security, and answer other questions related to a diversified income plan. Contact us today.