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Retiring in comfort is a goal for each of us. The closer you get to retirement, the more you begin to think about your life and how you can best enjoy the remainder of it. Many questions arise: How long will I live? Will I have enough to live on, and more importantly, will I have enough for the rest of my life? What if I get sick or need care? Predicting Needs By StageAn essential element of retirement is predicting your expenses. In this respect, retirement can be viewed in three stages: • Active Stage:
This is the stage when you want to do all of the
"things" that you could not do while you were working.
These are usually the most expensive years. This
phase could encompass travel, home remodeling, buying
a vacation home, or spending more time with grandchildren
and children. I always recommend to my clients that they stay in their homes and don't make a move that could create added expense in the future. Often people want to move to a warmer location, so they sell their homes and move south, only to realize that they have left their children and friends behind. They then need to travel back and forth on many occasions and find it expensive. • "Settled into
Retirement" Stage: You've done many of
the active stage items, and you are more content.
• Healthcare Stage:
This occurs when you are older and may be sick or
need some care, whether it is in your own home or
in a care facility. It is important at this point
in life that you have long-term care insurance in
place to safeguard against catastrophic losses from
illness. I encourage my clients to get long-term
care insurance well before they retire. Sources of Retirement IncomeSources of retirement income fall into two categories: predictable income and variable income. Predictable income comes from pensions, social security, and annuities. Variable income comes from personal and retirement investments and work. It's a good idea to ask your pension plan administrator for a written estimate of your monthly pension income based on your expected retirement date. Also ask how much more monthly income you would receive if you deferred the payments until a later date. The calculations for pension and annuity income are based on your age, so the longer you defer the payments, the larger the sum of money you will get. Many people take the value of their home into consideration as a source of income. For many seniors, their home is their largest asset. Homes are not income producers and are often costly to maintain. You could use the equity in the home to take a loan or do a reverse mortgage, but this is not a good source for future income. Never consider the possibility of inheritance. If you do get an inheritance, it will be an added bonus for you and can be entered into your plan when, and only when, you get the assets. Variable sources of income should be included, and the potential gains on these accounts noted, as well as the taxable or nontaxable events associated with these assets. Break EvenAfter you have gathered all of the information, you will have a good idea where you stand – whether you will need more income or if you will have enough. It will be easier to assess which assets can continue to create additional income and which assets can be spent. If you are below break even, don't despair! There are many solutions, some of which might involve selling your home or downsizing to an area that is more financially favorable both tax-wise and in decreasing your cost of living. Income SourcesIncome sources should be reviewed closely. The sources to use first are the ones in which the taxation event is the most minimal. Often these accounts are bonds, stocks, and cash that are not in a retirement plan. Americans, if they can, should delay taking assets out of their IRA until age 70 ½. Your taxable event will be less. Working even part-time can be a big boost for your income. You could get a job in a hobby that you have always enjoyed, or do odd jobs for people. Take ActionAs you step into retirement, one of the biggest adjustments is not having a regular paycheck. A helpful idea is to put aside one year's income into a money market account to ease the transition. Also, have all of your retirement income directly deposited into your account. This would include both predictable and variable income. Tracking all of your expenses will be easier this way. Proper planning prevents problems and shortcomings, and permits you to enjoy your latter years without worries and fears. Eventually, each of us will reach our retirement years, so if you've not yet started planning, the time is now. A successful retirement won't just happen; you need to create it.
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