Note:
Information courtesy of USAA Life Insurance Company and USAA Life Insurance Company of New York.
Follow these strategies and tips to manage your retirement income.
What will you spend?
It's important to start by calculating your expenses. You should separate essential expenses, such as food, housing, transportation and medical premiums or copays, from discretionary expenses like entertainment and travel. Although statistics show that on average overall spending tends to decrease as we age, some expenses like health care costs can increase. Also, more people are entering retirement with other debt such as student loan obligations for their children or grandchildren. To avoid overspending in retirement, you should consider a long-range plan to replace at least 70% to 85% of your gross pre-retirement income. Once you are within five years of retirement, focus on a more precise analysis of your actual income and expenses in retirement.
What are your guaranteed sources of retirement income?
We used to think about retirement income as pension planning, but times have changed. Fewer employers now offer pensions, which means it's up to you to create a retirement income plan. Guaranteed income is the lifetime income streams generated from guaranteed income resources.
Those can include:
- Social Security benefits, government or military pensions
- Private pensions or benefits that are backed by the Pension Benefit Guarantee Board
- Income annuities such as Single Premium Immediate Annuities
- Deferred Income Annuities
- Qualified Longevity Annuity ContractsOpens in a New Window See note 1
- Some variable annuities with Guaranteed Minimum Income Benefits or Guaranteed Minimum Withdrawal Benefits
What's the difference between your estimated retirement spending and guaranteed income?
If your guaranteed income exceeds your expected retirement spending, then congratulations. But many of us won't be so fortunate and will have a shortfall between guaranteed income and expenses. It's important to have guaranteed income that covers at least your essential expenses. If you have a gap between income and expenses, then read on.
What other resources can you convert into retirement income?
Investing your money is one thing but generating income from investments while you pull money out of your retirement account may be another. Consider all your investments earmarked for retirement such as employer-provided plans, individual IRAs and other investments. A safe withdrawal See note 2 rate from these resources will depend on how you are invested, how long you will make withdrawals, market conditions, how much you take out periodically and other factors. Some of these resources may be used to purchase more guaranteed income through income annuities. In addition, you may have equity in your home that can be turned into income through a home equity loan or a reverse mortgage.
What if you're still facing a shortfall in retirement income?
Many people have the goal to retire early. The combination of your guaranteed income and other income resources should allow you to do so. If not, it's time to consider how you might increase your income. You could delay retirement, work part time during retirement, or decrease spending by reducing large expenses such as housing or support for other family members.
A fixed income can come with unique challenges. As you're living in retirement, continue to think about ways to protect your income and lifestyle.
Get help with your retirement.
Consider working with a Retirement Income Specialist today.