A retirement income card for single women – InsuranceNewsNet
You’ll need a retirement income plan that supports the lifestyle you envision – and that minimizes the risk of outliving your savings.
I hope you have saved and invested over time and are looking to see if you have saved enough money or if you still need to save more.
To be sure, you will need to know three things:
how many years you need to fund,
what it will cost you to live each year, and
what will be your sources of income.
Let’s see how to do this.
We all dream of living to a ripe old age. But the longer you live, the more assets you’ll need to fund all those years.
There are two sides to the calculation of longevity. The first is when you retire and the second is how long you will live. You can control the first, but not the second. So let’s look at one at a time.
When you retire. The day you stop working and receive your last salary, you move from the “accumulation” phase to the “spending” phase. Suddenly, the flexibility to save a little more or work a little longer ends, and your basic nest egg is set. The focus is on how you spend your money and manage it, generating as much income as possible (after taxes).
Each year you delay your retirement, that’s one less year you have to finance. But there are also other advantages to delaying:
You can continue to build tax-deferred funds in your IRAs and workplace 401(k) plans or continue to fund your pension.
Working until you reach Medicare age at 65 means you won’t have to worry about being uninsured.
Each year after age 62 that you delay receiving Social Security increases your retirement benefit significantly, especially if you wait for the maximum at age 70.
How long do you live. Estimating your life expectancy using government statistics or life insurance charts gives you exactly that: estimates. And you don’t want to be on the wrong side of that estimate.
The Social Security Administration website has a Longevity Visualizer app that shows a woman born in 1956, age 65 today, is expected to live to age 87. But she also has a 10% chance of living past age 98. Every time you work with estimates and averages, you could live less – or more. But how much more?
Logically, if you have the resources, the safest thing is to plan to finance as many years as you can live. But, as life expectancy increases, you could finance beyond 100 years.
But there is a better way, and it has to do with the nature of the resources you have in your retirement nest egg, as we discuss below, under “Identifying Income Resources.”
Understanding what it will cost you to live is vital. There are often repeated formulas (for example, you will need 70% to 80% of your pre-retirement income after you retire). But, again, you don’t want to risk being wrong.
Instead, watch your spending carefully in the years leading up to your retirement date. A full year of recorded expenses is great for catching recurring expenses you’d miss by just looking at a few individual months. In short, the more you are willing to save, the safer your cost projections will be.
Next, invest time in imagining the lifestyle you would like to have in retirement. Focus on the details of a typical day, week, and month. See how this differs from how you spend your time (and money) today. Here is a structure you can use:
Make a list of your essential expenses (“needs”), the ones you will have to pay regardless of:
daily living expenses (rent, groceries and utilities),
financial commitments (mortgages, credit card debt and car loans)
healthcare and insurance, and
Then list your discretionary spending (“wants”), those things you would like to have and do, but could do without:
entertainment (cable TV, sports, crafts and hobbies),
luxuries (eating out, optional shopping, or being pampered),
trips (for pleasure and obligation), and
children, grandchildren and family (visits, gifts and financial aid).
By putting today’s dollar values on all of these items, you’ll know the minimum (and ideal) how much it would cost today.
And then, because we’re more aware of the impact of inflation these days, you’ll want to know how those costs will increase in the future.
If this all sounds complicated, you might want to find someone to help you navigate it. A financial advisor or a financial coach could be the solution.
Getting it right is essential.
Identify revenue sources
Next, review the nature of the retirement income sources available to you. A pension can be paid to you until your death. Your Social Security pays throughout your life and adjusts somewhat for inflation. (Don’t forget your spousal benefits if you’re an ex-spouse or widow.) Your 401(k), IRAs, annuities, rental properties, and other investments can fluctuate over time and may be depleted by your expenses. Finally, you will need to know if your sources of income will be taxed.
Next, you’ll want to estimate their value when you retire. The ideal structure is to have lifetime sources of income that easily cover your essential expenses, safe from market losses. Your riskier assets can fund your discretionary spending, which you could do without if necessary.
Again, you may want to seek help in assessing how prepared you are to meet your retirement needs. If there is a gap and you are in early retirement, you may want to:
delay retirement or work after retirement,
increase the return on your investments,
finding new sources of retirement income, or
reduce your spending plan during retirement.
Day-to-day financial management
Retirement finances are not a case of “set it and forget it”. You will need to carefully monitor your assets and manage your resources to meet the guidelines you have established in your retirement plan. You will want :
Review your investment portfolio regularly and make adjustments if its value deviates too much from your projections.
Reallocate funds from volatile investments to guaranteed income streams as needed.
Spend wisely, especially if the market drops in the early years. It’s hard to recover if you withdraw too early and can’t benefit from a subsequent market rally.
Consider taxes when deciding which assets to spend first, and don’t forget to take required minimum distributions (RMDs) from age 72. Use taxable sources when your tax rates are low and non-taxable sources in years when your tax rates are high.
No one said retirement planning – before and after retirement – would be easy. But the benefit of having “the funds you need for as long as you need them” is worth the effort. Do not hesitate to seek the help of a financial professional if you deem it necessary.
Bill Harris is a Retirement Management Advisor (RMA), CERTIFIED FINANCIAL PLANNER (CFP) Practitioner, Master Elite Ed Slott Advisor and the author of “Inheriting Your Spouse’s IRA”. He is President of WH Cornerstone Investments, a financial advisory firm located in Kingston, Massachusetts. Learn more about whcornerstone.com.
Investors, plans and money