Retirement Income Planning 101

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Serving the food!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:

What is “Retirement Income”?

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.

If I’m just starting out in my career, or even midcareer, does it really make sense to think about retirement income?

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.

What are my main sources of retirement income?

Beyond Social Security, you should make a list of your retirement accounts, where any earnings can grow on a tax-deferred basis, including:

  1. Current employer plan (401(k), 403(b), 457, Profit Sharing, SIMPLE IRA, SEP IRA)
  2. Former employer plan(s)
  3. Traditional or Rollover IRA(s)
  4. Roth IRA

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.

How do I know if I’m generating the retirement income I need?

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.

What if I’m already retired, but not confident about how to make my money last?

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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