When you’ve worked hard, saved for retirement and the time has finally arrived for you to retire, then what? Retirement planning also requires you to come up with an income plan that will help you confidently spend money that has taken a lifetime to build.
You’ve successfully secured your retirement and hit the retirement summit.
Once you hit that summit, you need to come back down safely, and the way back down is with your income plan. We’re going to walk through four questions that we know will help you with your spending through retirement.
4 Questions to Build Your Retirement Income Plan
1. How Long Should I Expect to Live?
If that’s difficult for you to read, you’re not alone. You work for retirement, and there’s no blueprint that states how long you’ll live. The average 65-year-old male, in today’s world, can expect to live to 84.
Females tend to live slightly longer, with the average female living until 86.5 years old.
Of course, this is the average. You might live until 105, or you might live until 67. There’s really no guarantee that a person will live until a certain age. When we develop plans for our clients, we never have a concrete plan that ends at, for example, 85.
We’re also finding that 1-in-3 people aged 65 now, live past 90, and 1-in-7 live past 95.
Medicine is improving, and people are living so much longer today, so you should have enough money in your account to live until 90 – 95.
If you live this long, you’ve planned for it. However, if you have a long-term care situation, planning for longer retirement can truly help. It’s best to be conservative with your life expectance.
You should never estimate your lifespan based on your parents or family members.
We know this first-hand. Many people we work with state: well, my parents lived until 62, and they are in their 80s. Medical advancements have helped improve the average lifespan dramatically, so it’s better to overshoot your life expectancy than to underestimate it.
2. How Much Will the Cost of Living Increase During My Lifetime?
Again, this is a difficult question because there’s no concrete answer on exactly how much the average cost of living will increase. However, we can plan the increase in the cost of living based on historical data.
- Inflation over the past 100 years has been just over 3%
- Inflation over the past 10 years has been 1.5%
When you look at the inflation records, you’ll even see times where deflation occurred. For example, in 2008, you’ll find that prices fell due to the financial crisis. But, in general, if you plan for a cost-of-living increase of 3% per year, this is a conservative estimate.
We use special software that estimates inflation for our clients.
For example, if we have someone who is 60 years old and expects to retire at 65, their needs can increase by as much as $1,000 in that five-year period at an inflation rate of 3% per year.
By the time this same person is 80, they may need an extra $2,500 a month to live the same quality of life that they have now. So, there’s so much to consider when thinking of your income plan.
Keep in mind that you don’t need to increase inflation on your mortgage or items where there are fixed costs.
3. When Should I Retire?
When it comes to retirement planning, you need to consider when you can retire. A few people love their jobs and can be confident that they want to remain in their positions until they’re 70. Retiring at 70 is the best option because you’ll get more in Social Security and also gain healthcare at 65.
However, many people don’t envision themselves working until 70, and that’s perfectly fine, too.
Sometimes, the most advantageous time to retire is later. The impact of retiring before 60 is:
- No healthcare
- No Social Security
- Losing ability to grow assets
There are also times when a person retires and there’s a bear market. Obviously, retiring in a tumbling market is scary. People that retired right before the pandemic saw their retirement fall over 30% in a few months.
Hopefully, these struggles can be overcome with the right investment strategy.
4. Where Should I Place My Assets?
You need two different types of money:
- Growth and income
We always ask to break down needs, wants and money to give away. Needs money, such as the money to pay your mortgage and bills, should come from income-producing assets. For example, a pension and Social Security can both produce income and allow you to pay off your needs.
Paying for your essentials every month is vital for your retirement.
However, you’ll often have an income gap that isn’t covered by just Social Security and your pension. In this case, your needs analysis will help you find ways to cover these needs. A few ways include bonds, CDs, and fixed annuities.
These financial vehicles offer you guaranteed income, although bonds and CDs have low interest rates.
Fixed index annuities are a good option, too. We have a few articles on annuities that can help you:
- What Limitations Are There to an Annuity?
- How Fixed Index Annuities Grow Your Money With Low Risk
- How to Get Guaranteed Income with a Fixed Indexed Annuity
You’ll also need to have some cash in the market with a decent rate of return. Of course, your risks in retirement should be much smaller. You may give up some upside but protecting against significant loss is so important while in retirement.
So, there’s a lot to think about when trying to strategize your retirement income plan. We hope that the questions above helped you really understand what it means to come down the summit and finally start enjoying your retirement.
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