At any age — 25, 45 or 65, you need a game plan for generating income from various sources of retirement savings, including Social Security and pension plans. Meeting with a trusted and experienced financial consultant can make the planning process go more smoothly. But before you reach that point, it’s helpful to understand the basics of retirement income and potential sources. Here’s a brief primer:
In general, you can think of retirement income as the amount of cash you will need each month to pay your bills and enjoy your life in retirement. Today, you (or your spouse or partner) may be receiving a single paycheck from your employer, or you may be self-employed. Once you retire, you will need to substitute your work paycheck by generating your own income for retirement, which may last 30 or more years.
Yes. It’s critical. The future of Social Security is uncertain, particularly for younger generations. You need to get a good grasp now of how much you’ll need to save for retirement, should Social Security fall short of meeting your expectations.
Beyond Social Security, you should make a list of your retirement accounts, where any earnings can grow on a tax-deferred basis, including:
You may also have taxable investments, such as mutual funds and individual stocks and bonds in brokerage accounts, that you may tap into for retirement income. Considering all of these different sources, you’ll need to develop a strategy for receiving retirement income.
As a general rule, start off assuming you’ll need 80% of your current earned income. But that percentage may vary a great deal, depending on the lifestyle you want, and how much your basic cost-of-living expenses will increase over time. For instance, think through the impact of healthcare costs in determining your basic cost-of-living expenses.
Whether retired or just starting your career, you should meet with an experienced financial consultant to discuss your current financial situation.
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