3 Things People Overlook When Planning Their Income in Retirement

 

For some, an ideal retirement means traveling around the country, or even the world. For others, it means spending more time with family and friends. As you get closer to retiring, you may have started thinking about how to fund whatever your ideal retirement is, since you’ll likely need to replace the paycheck you currently receive from your employer.

While most of us spend our working years saving up for retirement, when it’s time to actually retire, it will be a good idea to convert some or all of your savings into an income stream.

But, just because you will no longer be contributing to your savings and investment accounts doesn't mean there aren't other risks still involved. In fact, when planning your income in retirement, it can be even more important to not overlook some of the common difficulties that could impact your future incoming cash flow, including:

1. The Impact of Inflation

Today, it's not unheard of for people to live for 20 or more years in retirement, and during that time, it is likely that the items you need, such as food, utilities, and medical care, may cost much more than they do today. With that in mind, it is important that you not only maintain reliable, ongoing stream of income you can count on, but one that increases regularly so you don't have to cut back on your purchases. The good news is, there are ways you can create an income plan  based on your specific anticipated future income needs.

2. Unexpected Risk to Income

As you know, it's crucial to plan for unexpected risks during your working years, and the same holds true in retirement.

For example, as we age, you've probably noticed that we tend to spend more on health-related issues -- including prescriptions and long-term care. Just like with health, there are also potential risks to our finances themselves, such as a stock market downturn or low interest rates -- which can equate to uncertainty regarding the amount of income you can count on going forward.

With proper planning, you can set aside funds for some of the risks you’re most concerned about facing.

3. Taxes

Even if you know which sources the bulk of your income will come from, what many people aren’t aware of is that various income sources could be taxed differently.

Retirement income may come from one or more of the following, each with their own tax implications:

  • Social Security
  • Pension
  • IRA(s)
  • Personal savings and investments

Some people automatically assume that they will receive their Social Security income tax-free. However, this is not necessarily the case. It's also good to note that the type of IRA or personal savings you have can determine how much you will be taxed. Given that, be sure you have an idea of how much income you will actually net, as that is the amount you will have available for spending.

Secure Your Retirement with a Solid Income Plan

Knowing some of the retirement income risk factors to look for can be helpful. But not as helpful as creating a retirement income plan that can help protect from inflation, the volatility of the stock market and other factors outside of your control.

As you know, carefully planning your retirement income strategy is a key component impacting how well you can live in retirement.

Having a reliable income in the future means that you’ll worry less about where your next “paycheck” is coming from, and can concentrate more on enjoying the things you looked forward to and worked so hard for.

If you’re ready to take the next step in securing your retirement, use our retirement income planner to create a custom plan.

 

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Cindy Collins

Written by Cindy Collins

Forbes Contributor & Retirement Financial Professional

Cindy Collins is a Heyday Retirement contributor with over 30 years of experience in personal financial services.

Heyday is a premier source for comprehensive tools and informative content designed to help retirees build a secure retirement income plan.

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