Best Practices for Retirement Income Sourcing

Author: Mike Cohen, AIF® / 20 Jun 2023 / Retirement Trends & News

Retirement can be a time to kick back and enjoy life for many Americans, but it also requires some serious planning, especially when it comes to money. With people living longer and healthcare costs on the rise, having a solid source of income during your golden years is crucial. However, figuring out the ins and outs of retirement income can be a bit overwhelming, so let’s break it down.

Getting to Know Retirement Income Basics

Let’s start with the basics. For retirement planning, the focus is money. You’ll need income even once you are no longer employed, so think about Social Security, pensions, savings, and investments. Each one has its own perks and drawbacks, so it’s important to weigh them against your own needs and preferences.

• Social Security Benefits: This is like the backbone of retirement income for many folks. Your monthly payments are based on how much you earned during your working years, and you can start collecting them as early as age 62. The longer you wait, though, the bigger the payments will be.

• Pensions: For many of us, the pension is a figment of the past. But if you’re lucky enough to have one, it’s a steady stream of income provided by your employer in your retirement. The amount you receive depends on your salary and years of service. Very few employers offer pensions, so keep that in mind.
• Personal Savings: This is all about the money you’ve squirreled away for retirement in accounts like 401(k)s and IRAs. It gives you more control and flexibility, but you’ll need to plan and manage it carefully.
• Investments: These typically include stocks, bonds, ETFs, and mutual funds. These can potentially give you a nice boost in retirement income, but they come with a bit more risk compared to other sources.

Creating Your Retirement Income Plan

Now that you’ve got the lowdown on retirement income sources, it’s time to put together a plan. Here are some friendly tips to help you out:

• Set Realistic Goals: Dream big, but also be realistic. Consider your lifestyle and potential longevity. You may need to plan for future expenses such as medical bills or assistance with daily activities.
• Maximize Social Security Benefits: If you want to squeeze every penny out of your Social Security benefits, consider waiting until age 70 to start collecting. That way, you’ll get the highest monthly payment possible.
• Diversify Your Income: Don’t put all your eggs in one basket. Combining Social Security benefits, pensions, personal savings, and investments can give you a more reliable and diverse income stream.
• Have a Withdrawal Strategy: When it’s time to start using your retirement funds, be strategic. Consider things like taxes and required minimum distributions when deciding how much to withdraw from your accounts.
• Regularly Review Your Plan: Life changes, and so do your needs. Make it a habit to review your retirement income plan regularly — annually, at a minimum. And if you need some help, don’t hesitate to work with a financial advisor who can guide you along the way.

Avoid These Retirement Income Mistakes

We all make mistakes, but let’s try to avoid these common ones when it comes to retirement income:

• Overreliance on One Source: Putting all your eggs in one retirement income basket can be risky. Spread it out a bit to ensure a more stable income during your golden years.
• Underestimating Expenses: Don’t forget the details of the costs of retirement. Factor in everything from healthcare to long-term care needs, and even consider inflation.
• Forgetting About Taxes: Ah, taxes, the ever-present friend. Make sure to plan for them! Failing to do so can lead to unexpected tax bills that eat into your savings. Develop a tax-efficient withdrawal strategy and keep those dollars in your pocket.
• Ignoring Inflation: Inflation is like that sneaky friend who steals your purchasing power. Don’t ignore it! Look into investments like Treasury Inflation-Protected Securities (TIPS) that can help protect you against rising prices.
• Neglecting to Adjust Your Plan: As time goes on, your needs and goals may change. Make sure to revisit and adjust your retirement income plan as necessary. Flexibility is key!

By understanding the basics, creating a solid plan, and avoiding common mistakes, you’ll be well on your way to a comfy retirement. Remember, retirement planning is important, but it doesn’t have to be stressful. Cheers to your future and the adventures that await you!