Retirement income planning is the phase of retirement where you’re five years away from or in retirement. It is a critical time to make decisions on creating monthly income you will be living on for the rest of your life. At this point you have a much better idea what the various aspects of retirement. How?
Retirement Income Planning
We start by asking how much income do you need, want and wish to have? Later we will assess how much will your resources support? Do you have a mortgage or other expenses you foresee going away? There may be stages in your retirement where your income needs may fluctuate. You may find that although you have a paid off house, you will need some sort of assisted living or senior living that will increase your expenses. Once we assess these needs, we will proceed to examining your income sources.
If you break down your retirement spending needs, wants and wishes, you may find it wise cover your expenses with your
Ideally your needs expenses are covered by guaranteed income sources such as Social Security and pensions that have cost of living adjustments. If you’re lucky, your income sources will also cover some or all of your wants and wishes.
That said, you still may find that there is a gap between your needs expenses and what is covered by Social Security and pensions. This gap could be filled by taking a portion of your savings and purchasing a life annuity that would close the gap. Annuities are similar to pensions and Social Security in that when you pass on, unless there is a survivor benefit, there is no money left over. However, an annuity with a cost of living provides longevity insurance should you live a long life.
Retirement income planning is not just about what to do with your retirement savings. One of the key income sources is Social Security. Your decision on when to claim it is an irrevocable one that can have big consequences later. While you can claim it at age 62, that will not maximize your monthly paychecks and your future cost of living adjustments. You may find that waiting thinking later will be more beneficial. You can’t claim your Medicare healthcare benefits until age 65. How will you pay for healthcare from 62 until age 65?
Pensions can come with and without cost-of-living adjustments. If it does not have a COLA, then you will need to make up for that with your own savings or possibly work. When to claim your pension, is there a spouse that will need income should you predecease them, are just a couple of the factors to consider. Simply providing half the benefit to the surviving spouse, may put them into a bind. Certain costs such as rent, don’t cut in half just because there is one less person in the household.
Retirement income with annuities
You may have annuities from spouses and prior decisions. All annuities aren’t alike. Some are fixed; some are variable. Some have living benefit riders. Turning on the income is a different decision than simply saving into one. If you need lifeftime income similar to pensions and Social Security, you likely want a single premium annuity. How much you need to put into one to receive life payouts is another issue for analysis.
Then there is the whole question surrounding taxes. Your 401(k), 403(b) and IRA monies come with required minimum distributions at the age of 72. That simply means that the IRS requires you to take a stated percentage out of your account and pay taxes on that amount. If you needed the money and were already taking distributions, that is no big deal. If you weren’t it can unnecessarily run you out money and leave your heirs with less. You may able to control how much you pay in taxes through the use of converting those into Roth IRA accounts. That requires having or creating an eligible Roth account and having the resources to pay the taxes.
Retirement income withdrawals
How should you use your retirement savings so that won’t run out? These include systematic withdrawals, percentage withdrawals and a so-called bucket strategy If you have health savings, tax deferred and taxable accounts, the order in which you spend the accounts will also affect your results.
Healthcare and long term care
Based on your situation be help you evaluate choices and educate you on have you thought through how to pay for your healthcare and long-term here purchase a gap policy to close the gaps on what Medicare doesn’t pay. Does your employer have options working for them? How will you pay the cost of long-term care? You have a policy pay for it? Don’t have a policy buy one? What type should you buy and getting your Medicare.
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