What’s Your Plan For Financial Security In Retirement?

Are you worried that you won’t have enough money to last throughout your retirement? Unfortunately, “worry” is not a strategy!

Instead, you’ll feel a lot better if you develop a plan. By planning ahead, you’re less likely to become an example of that old saying “Failing to plan is planning to fail.” Without a plan, you’d be leaving your future to chance. With one, you’ve taken charge of your future and are much less likely to run out of money.

At a minimum, your financial plan should have two parts:

1. It should ensure that you’ll have enough lifetime retirement income to cover your living expenses for the rest of your life.
2. It should have provisions that account for unexpected risks that can disrupt your plans.

Let’s look further at each of these two parts.

Plan For Enough Retirement Income

At its most basic, your plan should satisfy the common-sense formula for retirement security:

• I > E, or Income greater than Expenses.

If you’re like most people, for many decades, you received a regular monthly paycheck and perhaps also additional variable income such as overtime or bonuses. This regular income helped impose discipline on your spending throughout your working years; over time, you hopefully learned that you couldn’t spend more than your regular and variable paychecks.

Since it served you well, stick with this familiar discipline in retirement. Set up regular monthly retirement paychecks that will last the rest of your life, and limit your spending to the total amount of these retirement paychecks. It’s also a good idea to build a margin between the amounts of your regular retirement paychecks and the living expenses you expect to address any surprises that are inevitable over a long retirement.

Build A Portfolio Of Lifetime Retirement Paychecks

Some of your monthly retirement paychecks can generate guaranteed income; examples include Social Security benefits, pensions, and annuities. Other paychecks might be variable and can increase or decrease over time; examples include systematic withdrawals from invested savings, income from part-time work, or income from a business.

To develop your portfolio of retirement paychecks, you’ll need to complete several important tasks:

• Optimize your Social Security benefits though a careful strategy that helps you decide on the best date for starting benefits.
• If you’re lucky enough to earn a traditional pension, determine the best time to start payments.
• Decide whether you want additional guaranteed lifetime income by purchasing a low-cost income annuity from an insurance company.
• If you want to generate variable retirement paychecks with systematic withdrawals from your retirement savings, decide on a method for calculating the amount of your regular withdrawals and for investing your savings.
• Finally, do the math to see if you’ll need additional income from working or from a business for a period after you retire.

Prepare A Budget For Your Living Expenses

Your living expenses will most likely change significantly in retirement, as you eliminate some expenses but take on others. You’ll want to prepare a budget that reflects the expenses you anticipate in retirement to make sure it fits within the retirement income you expect to earn. You’ll also want to separately identify your “must-have” and “nice-to-have” living expenses. This can help you decide how much guaranteed vs. variable retirement paychecks you’ll need.

If you find that your living expenses exceed the amount of your retirement paychecks, you’ll need to look for ways to reduce these expenses. Common reduction targets include housing and car expenses.

Plan For Surprises

You can have a good plan in place for satisfying the common-sense formula for retirement security, and then a surprise comes along that upsets your plan. To help with that, you’ll want to put in place strategies to address common retirement risks, such as:

• Stock market crashes. These are inevitable over a long retirement, so put in place strategies that will help you survive these crashes, including building enough guaranteed retirement income and maintaining a sufficient emergency fund.
• Medical bills. Make sure you have sufficient medical insurance to cover your medical bills in retirement, which are inevitable in your 70s and beyond.
• Emergency expenses. Your emergency fund might be needed to pay for such items as dental bills, home repairs, car repairs, or a new car.
• Long-term care. Many people might incur significant expenses for long-term care in their later years, so you’ll need a strategy to help cover the cost of this care.

All the above decisions can be beyond the expertise and experience of most people. If you’re feeling you’d like help with these decisions, you’ll want to work with a qualified advisor who has your best interests at heart.

This post is intended to be a high-level overview to start you on your path to financial security in retirement. There can be many details to work out as you develop a plan that will work best for you. That’s one good reason to work with a qualified advisor, someone who can tailor your plan to fit your unique circumstances and goals.

Spend the time it takes to develop a solid plan, then go enjoy your retirement!