Creating a secure retirement

Financial security requires a regular source of income.

One of your most challenging financial goals is creating a steady stream of income after you retire. Nobody wants to be a burden on his or her family, and nobody wants to struggle to make ends meet. But being sure you’ll have enough money for the 30 or more years you could live in retirement requires both planning and action. If you haven’t begun working toward this goal yet, it’s smart to start saving immediately.

DETERMINE YOUR NEEDS

It’s hard to know for certain what your long-term needs will be. Most financial planners suggest that you’ll need between 80% and 90% of your preretirement income to live comfortably during retirement. If you’re a single, self-supporting woman, you may need 100% of your preretirement income. That’s because women, on average, earn less than men, collect less Social Security, and are eligible for smaller pensions — if they get pensions at all.

Some costs are likely to go down. Your mortgage may be paid off, and you may not be paying as much in income tax — though withdrawals from individual retirement accounts (IRAs) and employer sponsored retirement savings plans, as well as pension payments, are taxed.

But certain costs — such as medical expenses or the cost of household help — may increase throughout retirement. While fewer than 10% of Americans between the ages of 65 and 69 need help with tasks like bathing or getting around, almost 50% of people over 85 do.

You may also hope to move when you retire. Among the financial issues to consider are whether the cost of living in your new home will be lower or higher than your current expenses.

TAKING A HARD LOOK

Whether you do your long-term planning on your own, use one of the electronic worksheets available on the internet, or enlist the services of a financial planner, you’ll need to provide the same type of information. Some you’ll know, but some you might have to collect. You may want to create a retirement file that you can access easily.

As you analyze your personal situation, ask yourself these questions:

  • What year do you hope to retire?
  • What’s your current income?
  • How much do you already have in accounts you’re designating as retirement accounts?
  • What real rate of return are you earning on those accounts?
  • How much are you adding to your retirement accounts each year?
  • What income can you realistically expect from other sources?

 

WHO IS THE MONEY FOR?

At the same time you’re trying to provide adequate retirement income for yourself, you may also be thinking about leaving money to the people or institutions that are important to you. Those goals tend to require different approaches.

Retirement savings plans can be one source of regular income. But the government requires you to withdraw a minimum amount from your IRA or retirement savings plan — such as a 401(k), 403(b), or 457 — each year.

Similarly, annuities and pensions are paid only as long as you or your joint annuitant live or until a payout period you have chosen ends.

In contrast, you can purchase other types of investments to build the value of your estate and increase what you can leave to your heirs. You can leave these investments untouched for as long as you choose, and often save capital gains taxes by passing them along to your heirs. Or you can choose to sell the investments at any point during your lifetime and use the gain for yourself. Be careful to consider all tax implications when you make those investment decisions.

A WORKING LIFE

If you’re doing a job you love, or you’re ready to start a new career, you may plan to work past customary retirement age. For people born in 1955 and after, this age will gradually increase from the current 66 and four months to 67 for those born in 1960 or later. New Social Security rules mean you won’t lose any part of your benefit for earning money after you reach full retirement age.

GETTING THE TIMING RIGHT

Your goal may be to retire as soon as you qualify — a date that varies based on who your employer is and how much money you’ve saved during your working years. You can retire from some jobs after 20 years, and from others when you turn 55. Some require you to work until 65 to get full retirement benefits, including retiree healthcare.

You can apply for Social Security benefits at 62 if you choose, either based on your own earnings or on your spouse’s, if you’re married. But keep one caution in mind: The people who face the risk of running out of money in old age people whose spouses retired early and began taking Social Security before they reached full retirement age. That doesn’t mean retiring early is bad, but it does mean you should create financial projections to figure out if the money you have will sustain you for the rest of your life.

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This information is provided with the understanding that the authors and publishers are not engaged in rendering financial, accounting or legal advice, and they assume no legal responsibility for the completeness or accuracy of the contents. Some charts and graphs have been edited for illustrative purposes. The text is based on information available at time of publication. Readers should consult a financial professional about their own situation before acting on any information.