The Power of a Retirement Paycheck

June 25, 2019

One of the biggest fears among soon-to-be and current retirees is running out of money. After all, our lifespans are increasing by an average of three years every generation. And the cost of healthcare isn’t going down anytime soon. 

In other words, retirement is lasting longer, and becoming more expensive, than ever before. However, with a little planning and help, you can create a customized “retirement paycheck” to fit your specific income needs. This paycheck will consist of withdrawals from your savings and help you better manage your retirement income over time.

Retirees, on average, have 6-10 accounts to draw necessary income from over time. The goal is to understand exactly how to cover your expenses in retirement and determine which accounts to draw from that is most tax-optimized. To begin this process, it is important to take these steps:

Step 1. Figure out what the big picture will look like for you

The first thing you need to do is look at what you’ll be spending. Create a budget that includes not only your monthly expenses but also your projected healthcare costs. Healthcare costs are typically underestimated in retirement but could be potentially your biggest expense. 

And if you’re planning for two? The best retirement plans are shared — both of your lifestyle goals and the numbers that line up. While it’s common for one partner to take the lead on the finances, now it’s time to get both of you involved. Surviving spouses live on average five years longer and oftentimes have higher healthcare costs.

Once you know your expected spending in retirement, it’s time to design your income plan to cover those costs. 

Step 2. Consider additional ways to maximize your guaranteed income

The good news is there are many ways retirees can increase their regular income. First and foremost, you need to figure out how to maximize your Social Security elections because it’s income for life, for you and your spouse. 

Many Americans default to electing at the earliest age possible (62), but that could leave thousands of dollars on the table. Knowing how that income supports your financial goals in retirement could help you determine if delaying is right for you or not. 

Ultimately, these benefits are great but they likely won’t be enough to cover all of your expenses in your retirement years. Another option that many Americans consider in bridging that income gap is purchasing an annuity. 

Annuities come in lots of different shapes and forms. The simplest option is a fixed annuity, which can offer guaranteed income for retirement, above and beyond what Social Security provides. Depending on its terms, a fixed annuity can give you a stable income in retirement. It can also provide longevity insurance if the income is guaranteed to continue, whether you live to 80, 90 or 100. When picking an annuity, there are many important things to consider, including the credit rating of the insurance company and the fees charged by the agent.  

Many retirees find it helpful to use Social Security and annuities to cover their essential spending and use their investment portfolio for their discretionary spending. Just like in your working years, it is important to build your “retirement paycheck” around the income you need for your desired lifestyle.

Step 3. When in doubt, seek professional help

A fiduciary can help you figure out your retirement expenses and devise a strategy. Spending a little upfront for some professional advice is nothing compared to lifting the weight off your shoulders of wondering how you’ll pay for the next 20 to 30 years of your life.

Once you move from a day job into retirement, money management becomes a very different animal. It’s never too early, or too late, to make a plan. 

Developing your own steady retirement paycheck can make all the difference between anxiously counting your pennies and living out your retirement in comfortable security. 

Take the first step. Set up a time with a FREE no obligation call with our expert financial adviser to understand how to build your custom retirement income plan.

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