How do you fund your retirement lifestyle? Have you tried to build your retirement income yet? What does that even entail? You have been trained and programmed to believe that you need a paycheck in order to survive. You lose your job, and now you are trying to figure out how you are going to afford your next mortgage payment, how you will put food on the table, and cover all the bills. Now you are entering retirement, and no more paycheck, and so you might be freaking out a bit! This is a HUGE shift in your world and mindset to grasp with. What can help is knowing how to build your retirement income, testing it out, and doing a dry run.
Let’s imagine you are a career woman, and have worked at a corporation for the past 30 years. You are embarking on your retirement next year, and are starting to get a little nervous about this big change in your world. Do you have enough money saved up? Will you be a burden on your loved ones because you outlived your nest egg? Will I be bored? Before your retirement party, there are a few items you can do to help calm these concerns that keep popping up in your head day and night!
The first thing to do is go through all your expenses. Highlight which expenses will go away when you stop working such as office clothes (those ugly business suits are no longer in your wardrobe!!), commuting costs, and retirement plan contributions. Next which costs might be added? You might want to travel more, spend some money to start hobbies, join a fitness club, or start a retirement business. Don’t forget about health care cost before and after Medicare kicks in! The last part is what expenses can you live without? And what expenses can you get rid of before you retire? You could pay off your mortgage, pay off your car loan, do a house renovation while you are still working, and pay off any debt!
After going through your expenses, which will hopefully be lower than your working year expenses, it’s time to match them up to your income. People with more than 3 income sources tend to be more confident with their retirement plan. What counts as an income source? You could get a part time job, do some consulting, get a rental property, use investments as income, social security, or maybe a pension if you are lucky. Tally up all your money, investments, and retirement accounts, and then take about 3-4% of it as an income base. 3-4% is a conservative withdrawal rate to start with, but you should speak with a financial advisor to get the real numbers run. Again this is just a starting point, and I happen to know an advisor you can work with…ME! After you look at your income amount each month, how does it compare to your expenses?
If you have more income than expenses at the end of the month, you should feel pretty good. Inflation will come up each year so that will give you a cushion as everyday items start costing more and more. If you are short income at the end of the month, it’s time to re-evaluate! How can we lower your expenses even more and/or raise your income. It’s nice having a plan B in mind when you think about your retirement, so how can you still have a happy and fulfilling retirement while spending less? Can you downsize, or downsize even more if you’ve already done so? You can move to a cheaper state, continue working for a few more years until you’ve increased your savings a little more. Get creative!
You don’t have to do it alone either! Speak with a professional to get their opinion or a second opinion. Your financial future is too important to take the first solution you hear. After you’ve figured out your income and expenses do a dry run in 2 different ways. I will challenge you to live on your new budgeted retirement income for a year to see if it is realistic. You could have forgotten expenses, health care costs, or other unexpected purchases. The other dry run is to use a retirement program to forecast out what the next 20-30 years will look like. Both of these dry runs will give you comfort in your financial future, which will lead to confidence. Then you can strut your stuff into your retirement party feeling pretty darn good about your next big chapter in life. And maybe splurge on some hot heals because you’ve already budgeted it into your plan!
Opinions expressed in the attached article are those of the author, Jessica Weaver, and not necessarily those of Raymond James.