Planning for retirement: How to balance your retirement income and expenses

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Siena Wealth Advisory Group

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Posted on

Jul 22, 2023

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Florida - Southwest

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In this article, we’ll cover:

  • Different retirement income sources
  • Retirement withdrawal strategies
  • Cash flow in retirement
  • Estimating the longevity of your retirement funds
  • Ways to reduce expenses or increase income

 

Your retirement income sources

Most people in retirement plan to draw income from several sources. Even if you receive guaranteed income from both Social Security and a pension, it may not be enough to cover all your expenses and support your lifestyle. You may also need to draw on your savings, investments and supplemental retirement income sources to generate income.

Government and guaranteed retirement income sources

Personal retirement savings and supplemental retirement income sources

  • Social Security. While it may not cover all your expenses, Social Security can provide some income. If you are not yet receiving Social Security, you can contact the Social Security Administration at www.ssa.gov to get started or to request an estimate of your future benefits.
  • Pension plans. If you are fortunate enough to be covered by a traditional pension plan, you probably receive a steady income every month.
  • 401(k) or other workplace retirement plan
  • IRAs
  • Annuities
  • Savings accounts and certificates of deposit (CDs)
  • Stocks, bonds and other investments
  • Part- or full-time work
  • Rental property

 

 

Understanding retirement withdrawal strategies

Do you have a strategy for withdrawing the money you need? Social Security and pensions may provide a fixed amount every month, but you'll need to know how to plan out your retirement income in order to make the most of your other assets throughout retirement. Consider working with a financial advisor to develop the right strategy for you.

Timing when you withdraw money can have a significant impact on the taxes you pay.

The order in which you withdraw money also matters. While everyone's needs are different, the general guideline for tax-efficient withdrawals is:

  • Taxable accounts first
  • Tax-deferred accounts next
  • Tax-free accounts last

This order may vary based on your individual goals and tax bracket, so it's wise to consult a financial advisor.

 

Generating income in retirement

Once you have the timing and order for withdrawals down, you'll need a plan for generating cash flow while keeping some assets growing. Your financial advisor can show you how to provide retirement income using three basic elements:

  • A cash account for day-to-day money
  • A short-term reserve to cover emergencies and generate consistent income
  • Long-term assets for potential growth

Cash account

A cash account is your primary access point for day-to-day money. It provides a convenient way to manage your income and expenses. Typically, a cash account includes checking, savings or money market accounts. Most assets in this category are liquid, so you can draw from them at any time without loss or penalty.

Short-term cash reserve

You'll also need short-term assets to serve as a cash reserve and create consistent and predictable income. Short-term assets are investments that generally have guaranteed principal, such as:

  • Certificates of deposit (CDs)
  • Treasury bills
  • Mid-term assets such as bonds

As these assets mature, the money may be moved to your cash account. This way, your short-term cash reserve can serve as a reliable plan for income for several years during retirement, regardless of how your long-term investments are performing.

Long-term assets

The third element is long-term assets. Their primary goal is to provide growth that will help meet your financial needs throughout retirement as well as help build assets for your legacy. You may also draw from long-term assets to create income, which can be transferred as needed to your short-term reserves or directly to your cash account.

Long-term solutions may include:

  • Stocks and bonds held individually or in mutual funds
  • Fixed and variable annuities
  • Real estate and real estate investment trusts (REITs)
  • Hedge funds and commodity investments
  • Life insurance cash value

When you begin drawing on your assets, it's critical to remain aware of the effects of market volatility and inflation. Placing some of your assets in bonds and other fixed-income vehicles can help reduce your portfolio's overall volatility, while also mitigating the impact of inflation and stock market downturns.

 

Estimating how long your money will last in retirement

With careful planning, your sources of income should be enough for a long, comfortable retirement. But if your expenses are more than you expected, or your investments haven't performed well enough, you may need to bridge a gap between your costs and income.

While it's impossible to predict the future, there are tools that can help you make a reasonable estimate of how long your money will last. For example, by plugging your numbers into a retirement planning calculator, you can see how long your money will last in thousands of possible market scenarios. If you find that your money might run out too soon, you may need to make some adjustments.

 

Strategies to reduce expenses or increase income

  • Find lifestyle expenses that you can cut. Keeping an expense diary can help you evaluate your current expenses.

  • Consider shifting money from low-interest savings accounts into investments such as long-term bonds that pay higher interest rates — if you are comfortable with the additional risk.

  • Reduce your mortgage and living expenses. Downsizing to a less expensive home or area can help you save on taxes, maintenance and other costs.

  • Go back to work, at least part-time, to earn extra income and enjoy the benefits of remaining active.

  • Consider a reverse mortgage, which allows you to borrow against the value ("equity") built up in your home if you are 62 or older.

Using a variety of investments, an Ameriprise financial advisor can help you turn your assets into a stream of income that is designed to last throughout retirement. This includes choosing appropriate investments for your cash reserve and long-term assets, as well as setting up a central cash account for your day-to-day expenses.

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Local Services By This Author

Siena Wealth Advisory Group

Financial Advisor 999 Vanderbilt Beach Rd., Ste. 200, Naples, Florida, 34108

At Siena Wealth Advisory Group we are passionate about helping you protect yourself and your family from the unexpected. That is why we take the time to get to know each and every one of our clients. We believe it is our duty, obligation and responsibility to help guide you to a more confident retirement. After all, you only get one retirement. We'll help you plan to get it right.At Siena Wealth Advisory Group it's not just financial planning, it's personal.