- 3-Minute Video
- Oct 27, 2017
Steps for Creating a Retirement Income Plan
Making the switch from saving as much as possible for retirement to spending savings in retirement requires a shift in how you think about your money.
Making the switch from saving as much as possible for retirement to spending savings in retirement requires a shift in how you think about your money. Many people focus on saving as they plan for retirement, but it’s important to change gears by preparing for expenses and income after they stop working.
While you’re working, you know you’ll receive a regular paycheck. But while living in retirement, that income source may end. Fortunately, there are ways to help make sure there’s enough income to last long after the retirement party ends.
First, estimate expenses during retirement. Our Future Income Planner can help do this.
Traditionally, financial experts estimate that people need about 80% of the annual income they earned before retirement to maintain a similar lifestyle after they retire. That’s because, as we get older, many of our day-to-day costs — like housing, transportation, food, clothing, and entertainment — decrease, so we don’t need to spend as much.
But that 80% doesn’t take into account your unique situation. For example, if you plan to travel more or are thinking about moving, you could need more income. And if you plan to work part-time, you might need less.
Another important factor to consider is life expectancy. We’re living longer, meaning we spend more years in retirement than any previous generation. People need income to support their lifestyle that whole time.
Second, make a list of all income sources. The list should include:
- Social Security
- Pensions and annuities
- Personal savings in IRAs, 401(k)s or 403(b)s, investment, and bank accounts
- Earnings from full- or part-time work
Once you know how much money you’ll have to live on in retirement, compare that with what you expect to spend. If there’s a gap, don’t panic. Start by breaking out essential living costs from less essential expenses to get a sense of what will need more attention.
Most experts suggest covering essential expenses with guaranteed income and using other sources of income or savings for expenses that are not as essential. If there isn’t enough income to cover essential expenses, an additional income source, like an annuity, may help bridge the gap.
Annuities turn a portion of savings into regular income payments that the annuity owner gets for the rest of their life. That can help close any income gaps, making the switch from saving now to spending savings in retirement a lot easier.
Talk with a financial professional about whether an annuity could help you prepare for your transition to retirement, or use our Annuity Income Calculator to begin estimating retirement expenses.