Once you retire, your sources of income change radically. Though you may supplement your retirement income with a part-time job, most of it will come from what you’ve saved and invested and Social Security. But here’s something you may not know: it isn’t how much you’ve saved, it’s what you do with your savings. As James Nichols, Head of Retirement Income and Advice Strategy for Voya Retirement, said on USAToday.com: “The reality is, when you’re moving into retirement, a big pile of money doesn’t do you much good unless you know how to turn that into income.”
Not all retirement savings are the same
At this point you may want to bring in a financial professional to formulate a plan based on the pros and cons of your various income sources. For example, withdrawals from 401ks or Traditional IRAs are fully taxable. On the other hand, qualified withdrawals from Roth plans are paid out to you income tax-free. A well-designed and managed cash value life insurance policy can also potentially be a source of supplemental retirement income.1 And if you start drawing your Social Security benefit before age 65, you won’t receive your full benefit. To maximize your income stream over the length of retirement (which could be over 30 years), you may want to think about adjusting some of your savings strategies today.
Keeping it real
How much income will you really need in retirement? One of the first things you can do to find out is to develop a realistic budget. Start with the basics: food, housing, travel and then go from there. You should also take into consideration the things you want to do when you retire and see how you can fit those into your budget too.
If you’re using your current lifestyle to act as a starting point, you’ll need to do the same for your current income. For example, if you earn $100,000 annually from your job, then after taxes, insurance and deductions, your net take-home pay may be about $75,000. That’s the number you’re currently living on and the approximate amount, after income taxes, you’ll need in retirement if you want to keep living the way you do now.
The ball is in your court. With smart retirement income planning, you’ll know what to do with your savings to make sure they help you live the life you want throughout your retirement.
1Subject to the terms of the policy, cash values from a life insurance policy may be withdrawn income tax free up to the policy's tax basis and additional cash values may be distributed through policy loans. Policy loans and partial withdrawals may vary by state, generate an income tax liability, reduce available surrender value and death benefits or cause the policy to lapse.
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