People are living longer. The need for retirement income that lasts a lifetime becomes more important the closer you are to retirement. Will you have enough income to support the lifestyle you want throughout your retirement? George Foreman once said, "The question isn’t at what age I want to retire, it's at what income."
First, what does retirement mean to you? Does it mean a never-ending vacation? Or would you say that it is a way of life that will bring challenges and concerns along the way? If your answer is the latter then you are heading in the right direction. Retirement has two phases, a pre-retirement and a post-retirement phase.
The pre-retirement phase is the working years. These are the years you build wealth for retirement. The choices you make in these years are a critical component to living the life you want to live in your retirement. The most common savings vehicles used in this phase are primarily retirement plans followed by non-retirement accounts, invested in long-term products to include stocks, bonds and mutual funds and various other securities product(s). The amount of money saved during this phase will determine your success as a retiree.
Thoughts to consider prior to retirement:
- How much money will you need to cover your lifestyle to include essential and discretionary expenses? This is a good time to identify your personal goals and objectives.
- What sources of income will you have available to you at retirement? (e.g., pensions and/or Social Security payments) • What are the other sources of income and assets available to support your lifestyle?
- Determine at what age should you start receiving Social Security payments? Noting the longer you wait to collect, the bigger your benefit grows.
- What are the best choices for your health care? Is Medicare Standard a good option or would Medicare Advantage work better?
- Other items to consider are clearing up long-term debt, creating a budget, and updating estate planning options. It is important to meet with a professional who can help you put together an income plan before entering the post-retirement phase.
- Once you have stopped working you enter the post-retirement phase. This is where the rubber meets the road! Anticipate retirement as a 30-year journey. In preparation of your journey, you need to look at the amount of income necessary to supplement your retirement for 30 years.
Consider the following eight most common sources of income:
- Pensions, e.g., Washington State PERS system, Social Security, and Single Premium Annuities. Employer-sponsored benefit plans such as 401(k), 457 plans (Deferred Compensation Plans), and 403(b)/(a) plans.
- Traditional/Roth IRAs
- Income from the selling of a business
- Part-time employment
- Home equity
- Rental properties
- Savings and investments outside of IRAs
Everyone’s dream of retirement is different but ultimately everyone will need income to make this dream a reality. You are not alone in this endeavor. It is never too late or too early to start planning for retirement.
So, are you ready to retire?
Francisco Barreto, Financial Advisor