Retirement Income Planning Strategies

Author: Siân Killingsworth / 13 Jun 2023 / Personal Finance, Small Business 401k

Whether you’re a small business owner looking to offer a 401(k) plan to yourself and your employees, a sole proprietor implementing a solo 401(k), or an employee seeking resources for how to make the most of your employer-sponsored retirement plan, we can all agree on one thing: Retirement is a time to relax and enjoy the fruits of your labor.

However, to ensure a comfortable retirement, it is important to plan your retirement income carefully. With the average life expectancy on the rise, it’s crucial to make sure that your retirement income lasts as long as you do (or even longer).

What is Retirement Income Planning?

Retirement income planning is how to determine both how much money you’ll need during retirement and devising a plan to achieve that income. It is a critical part of financial planning.

Calculate Your Retirement Income Needs

The first step in retirement income planning is to determine how much money you will need during retirement. Your retirement income needs will depend on various factors, such as your current lifestyle, future expenses, and expected retirement age. You should also factor in inevitabilities like inflation, since the cost of living rises with time.

You can use a retirement calculator to determine how much money you’ll have in your small business 401(k) when you start making withdrawals.

Determine Your Retirement Income Sources

Retirement income can come from various sources, such as Social Security benefits, pensions, investments, and personal savings. Understanding the potential sources of retirement income is essential for retirement income planning.

Maximize Your Social Security Benefits

Social Security benefits can be a significant source of retirement income for many Americans. Understanding how Social Security benefits work and optimizing your benefits is essential. Delaying your Social Security benefits until you reach full retirement age can significantly increase your benefit amount.

Consider Tax-Efficient Withdrawal Strategies

Tax-efficient withdrawal strategies can help stretch your retirement income further. It is essential to consider the tax implications of different retirement accounts, such as 401(k)s, Roth 401(k)s and more. Choosing the right withdrawal strategy can help minimize your tax burden and ensure long-term financial stability.

Create a Diversified Investment Portfolio

Investing can be a valuable tool for retirement income planning. Creating a diversified investment portfolio can help reduce risk and maximize returns. If you’re a small business owner, offering a 401(k) plan with different investment options for your employees’ individual risk tolerance, investment goals and time horizons can be one of the most effective ways to encourage participation in your small business 401(k) plan.

Plan for Long-Term Care

As you advance in age, it’s also likely that your medical expenses will increase, including the addition of long-term care. Long-term care can be a significant expense during retirement, but it’s important to plan for these expenses and consider the options available to make them more affordable, such as long-term care insurance.

Review and Update Your Retirement Plan

Retirement income planning is an ongoing process. Life events, such as changes in health, family status, or financial situation, can impact your retirement income needs.

If you’re a small business owner, it’s equally important for you to regularly review and update your small business retirement plan, to help ensure your employees are set up for success in the future. Review it annually, or more often if your business or your situation changes.

Ubiquity is not a registered investment advisor, and the information provided herein should not be considered legal or tax advice. We recommend consulting with your financial planner, attorney, and/or tax advisor for personalized advice.