You’ve spent years climbing that hill called life, preparing for the day when you can ease back on the throttle and enjoy what you’ve accomplished. “I think I can, I think I can.” Well, guess what? You did. Now that the time to start withdrawing your retirement income is in sight, it’s important to consider how you’re going to make the most of the money you’ve saved.
Think of your retirement savings as a monthly “paycheck replacement”
You may have several sources of retirement savings, like IRAs, employer plans, annuities, and, of course, Social Security. Whatever the source of your income, think of it as a paycheck replacement from yourself, one that you’ll be counting on for years to come. And that means taking into account things like budgeting and different tax strategies:
- Know what you need to spend each year. Because of taxes and other requirements, you’ll need to decide the order and amount of each asset you tap. For instance, you must begin withdrawals from certain qualified tax-deferred plans by age 70½ or you will be subject to a tax penalty. A tax advisor or financial professional can be a great help at this time.
- Know your conversion options. You may want to convert some of your assets into other products that may be better suited to provide a steady and reliable income stream. Retirees have many different options to choose from - ask your financial advisor to help you select the options that make sense for you.
Keep more of what you earn
We all want to live a long and healthy life—preferably not on a shoestring budget. That means taking a realistic look at a few factors that can affect your income stream in retirement:
- Market downturns. You’ve probably changed your investment approach to more conservative investments to lower your risk. But when markets overall perform badly, they can still impact the value of your portfolio. To make sure you do not spend down your savings too quickly it is important to re-evaluate and adjust your withdrawal approach periodically and after big market swings.
- Inflation. When you estimate for the long term, always factor in rising costs for food, fuel, housing, healthcare and other necessities. We are all familiar with rising costs. Check out movies from the late 60s and early 70s where you see gas at 29 cents per gallon.
- Taxes. If your income stays about the same in retirement, your taxes may stay the same too. Plus, your various retirement accounts may have varying tax requirements. Even the decision as to whether to withdraw principal or earnings from a savings account could have a tax impact.
- Medical Expenses. Even though Medicare kicks in when you turn 65, treating unplanned health issues can have a big impact on your finances and the cost of Medicare Part B is means tested -- the amount of taxable income you have in retirement can affect the cost of your Medicare insurance coverage.
- Needs of Family Members. You may be part of the “sandwich generation.” That means you’re taking care of your parents while providing for your children and grandchildren – all the while trying to maintain your own financial security in retirement.
- Longevity. Life expectancies are increasing—and that’s a good thing. Just make sure your income strategies take into account that you, and your spouse, could live another 20 – 30 years or more. One stat you may have heard on social media recently: for a couple currently aged 65 there is a 50% chance that at least one spouse will live to age 90.
Funny, when you lay it all out like that, you can see that the challenges of retirement aren’t all that different from the ones you’ve been handling for years. As always, it’s important to adjust your strategy to new realities. Work through these important issues with your financial professional.
This material is provided for general and educational purposes only; it is not intended to provide legal, tax or investment advice. All investments are subject to risk. We recommend that you consult an independent legal or financial advisor for specific advice about your individual situation.
The tax information herein is not intended to be used, and cannot be used by any taxpayer, for the purpose of avoiding tax penalties. Taxpayers should seek advice based on their own particular circumstances from an independent tax advisor.
Securities and investment advisory services offered through Voya Financial Advisors, Inc., member SIPC.
Neither Voya™ nor its affiliated companies or representatives provide tax or legal advice. Please consult with your tax and legal advisors regarding your individual situation.