One of the biggest fears plaguing individuals approaching age 55 is whether they will have enough money to support or maintain the lifestyle they desire. The question that I have heard over and over again throughout my almost 30 years in the financial planning industry is, “Will I run out of money during retirement?” This question, although daunting for some, is a real eye-opener for others. Outlined below are five suggestions to help secure your retirement:
1. Analyze guaranteed income like pension and social security to expose you to a shortfall
Overall, you want to come up with a retirement plan and the first thing needed to do is to analyze where your guaranteed sources of income are coming from. Social security, pensions, beneficiary of a trust are all examples of guaranteed income and those should be identified as they become the baseline for determining how much is needed from your investments.
2. Create a Retirement Income Plan
It is important, regardless of your financial station in life, to create a well thought out and well-researched retirement income plan. The plan should show what you will receive in income, what’s guaranteed and what’s required from your investments to live the lifestyle you envision. This is the time of your life when you should take nothing to chance and if you haven’t taken the time to create a detailed plan, then you are approaching your retirement years blindly.
3. Understand how different income is taxed
Social security, money coming out of a retirement plan, dividends, capital gains are all taxed differently. It is important to understand how taxation works or find a professional who can help explain the various tax laws. A penny saved is a penny earned.
4. Make sure your income producing assets are part of your plan
Income producing assets are dividends from stock, monies generated if you own real estate and are receiving rental fees and interest. These revenue streams all need to be part of your comprehensive retirement income plan. At this stage of life, it is wise to stay away from hot growth stocks and rather, choose stocks and bonds which generate consistent interest. Now is the time to invest for income rather than growth.
5. Factor inflation into your retirement plan
It’s crucial to always remember inflation. If you live 30+ years in
retirement, you better be prepared to increase your income to keep up
with inflation. Often people forget about rising prices and don’t factor
these costs into their retirement plan.
Retirement plans vary by individual and vary by intensity and
specificity. Even though plans differ, it is essential to keep in mind
the steps outlined to help secure a retirement plan in which you feel comfortable. You don’t want to be the individual asking the question “will I run out of money during my retirement?”