What is Your Income Outcome?

6 Considerations to Help You Enjoy Your Retirement Years

Where is your income going? When you’re comfortable enough to pay your bills and enjoy your lifestyle, you may not think too much about it day to day. As long as your expenses are being met by your paycheck, or the profits from your business, what else is there to worry about? But when your income stops, your expenses will continue. How will you replace that income when you retire?

This is a critical question that should be answered by each of us if we hope to retire and stay retired in the future. As a Retirement Income Certified Professional (RICP®) I am all too aware of how important this issue is in providing not just a functional retirement experience, but an enjoyable one.

Magic Numbers…

Many folks think the secret to retiring is just to make more money. There is a magic number that someone said they needed to save before they can finally stop working. Once they hit that number, they’ll put their portfolio into bonds or CD’s and just spend the income that’s produced, leaving the principal intact. This method can work, but that doesn’t mean it will necessarily work for everyone, mostly because the numbers involved can be so daunting!

Let’s say you need $250,000 in annual income to comfortably retire: with this method, even at a relatively high interest rate of 5%, you would need five million dollars in capital to achieve your desired income. And if interest rates drop, you might be forced to start eating into your principle.

Luckily, there is more than one approach to achieving your retirement income goals. A lot of times, there are simple factors that experts look at in determining an appropriate retirement strategy that will work for you.

Here are 6 Important Considerations in Designing Plans to Replace Your Paycheck in Retirement:

1. What does it cost to pay for your lifestyle? Knowing how much income you’ll need to live the way you want is a critical piece of information and the starting point of most conversations about retirement. Clients who underestimate what they need frequently “blow their budget” and find themselves scrambling to move things around, which can cause trouble in the future. Consider taking the time to track your current monthly spending habits. This exercise is useful not only for creating a budget to increase your savings, but also to determine a starting place for your desired retirement income.
2. How long will the income last? If you knew the day you would die, you could calculate how much of your assets to spend each year, with the last dollar being spent on your last day. For better or worse, we generally don’t have that kind of certainty. One strategy for determining what you’ll need is estimating how long you’ll live and planning from there. The problem is this is only an estimate; what do you do if you live longer? I recommend looking at income revenues such as pensions, social security and annuities. These are 3 examples of income generators that can provide income for as long as you live. In many cases, including those tools in your plan can let you actually spend more than if you’re trying to guess how long a lump sum of money will last.

3. How reliable is the income provided? Dividends can be cut if a company loses profitability. Rental income stops if your tenant(s) don’t pay. Bond income only lasts until the bond matures, then you will be subject to whatever interest rates are available at the time. Many common income strategies are subject to fluctuation and interruption which can lead to problems when not properly taken into account. Think about diversifying your income streams to account for future fluctuations in any singular investment type.
4. Will your income keep up with inflation? In 2006, it cost 39 cents to mail a first class letter. Coming this July, that same stamp will cost 73 cents, an 87% increase in less than 20 years. With people living longer on average, your retirement income may need to cover more cost increases than ever. Even if you can achieve a steady, fixed retirement income that lasts your entire life, without accounting for inflation you may still be coming up short. This means that you may need to include strategies like laddered CD’s, deferred income annuities (DIAs) annuities with increasing income, or a bucket approach to protect your purchasing power through the years.
5. How much are you losing to taxes? What if taxes are increased in the future? Will you be at risk? We know that for many, taxes will be increasing in January of 2026, if congress doesn’t change the current tax code. If the majority of your money is in a tax deferred retirement account, like an IRA or 401K, taxes will be taken out when you draw funds. Also, that income could lead to “stealth taxes” like increases in Medicare premiums (https://www.ssa.gov/benefits/medicare/medicare-premiums.html). By creating a long-term tax plan, you may create more options to adjust your income sources and help navigate future tax code changes.
6. How much ongoing work are you willing to do to stay on track? I have some clients who love to set up spreadsheets, monitor markets and analyze different investment strategies. Others (most folks, actually) just want to see the money show up in their checking account each month. Like many of the strategies we’ve discussed, neither of these approaches are wrong. However, one approach may be wrong for you. Just like some plants require more time and care on the part of the gardener to flourish; some investments require more or less engagement on the part of the investor to be successful. If the strategy you select doesn’t match your desired level of engagement, the chances of success can be greatly reduced. Consider how actively you want to monitor your income to ensure it’s performing before committing to that strategy.

Where do I start?

This is a lot of factors to consider, but remember there are resources out there to help you along the way. If you’re ready to start making plans, we’d love to show you some of the tools we have to help you consider different aspects of your retirement.

One tool we’re particularly excited about is the “Retirement Income Style Awareness” tool (or RISA® for short). Created by Wade Pfau, one of the founding professors of the Retirement Income Certified Professional® (RICP®) program at The American College of Financial Services, the RISA helps assess your income style. According to his research, getting in touch with the strategies that work for you can ultimately provide better retirement outcomes (https://risaprofile.com/resources/).

We are so excited to be able to add this service to the portfolio of services we offer our clients. If you would like to know more about income style and options that may work for you, contact our office and we can arrange for you to learn about your personal retirement income style.

Let us help you get in touch with the right strategies to start you on your way to a Happy Retirement!