When it is time to retire, replacing your work paycheck with a retirement income paycheck needs a solid plan. Making a plan helps you with budgeting and gives you the confidence to spend what you have worked so hard to save. What we all want in retirement is different. You may want to play golf daily. Your wife likes to visit her sister once a week. That is why you need to have a personalized plan one that works for you and what you want. That is an important part of turning years of savings into retirement income. Below are some steps that will help you while you make a retirement paycheck.
Define your retirement goals.
What do you envision doing during your retirement? How does that change the budget you have had during your working years? If you have a spouse, do you plan to retire at the same time or you have different goals? Lots to think through when you dream about your life’s next phase.
Assess all your resources
After decades of saving and working, it is pretty common to have more than one investment account. Are you involving everything? Contact your old employers if you aren’t sure. If they are no longer in business or you have difficulty contacting them, try pbgc.gov or missingmoney.com. you should think about consolidating accounts to simplify managing the investments.
Pay attention to the details.
When you analyze the options for retirement income, you should consider the differences in fees and expenses, or tax and legal implications, for each option. Consider the risk tolerance and the time length before you retire. By taking a planned approach to making a retirement income paycheck, you help reduce your chances of outliving your savings. Because no one wants that, right? Plus, when you know you cannot outlive it, you are not scared to spend your money and enjoy life more.
Try a total return approach
Living off interest and dividends without touching growth or the original investment can be an option for some retirees, but it isn’t a probable solution for many people. An alternative is a total return approach in which your withdrawal consists of all sources (growth, interest, dividends), and can or cannot include touching the original investment to make up what you need. This can offer you more flexibility and make more income. You can use the 4 percent rule as a beginning point on how much to withdraw in retirement.
Stay invested
Several retirees are tempted to move their money into safe investments like bonds, certificates of deposit, or savings accounts. Unfortunately, those investments cannot keep up with inflation over time. Devoting a minimum of 50 percent of investment portfolios to stocks ideally using a low-price target date, balanced or stock index fund can produce more income over time.
Once you make a retirement paycheck, your work is not done. You will still need emergency funds for unexpected expenses and a plan to pay for long-term care, amongst other tasks. But establishing a reliable income stream will help you meet the regular expenses in retirement without worrying you will run out of cash.
