In today's world, planning for retirement is more crucial than ever. With increasing life expectancies and the uncertainty surrounding Social Security and pensions, developing a robust retirement income strategy is essential for achieving long-term financial security.
At Aligned Wealth Advisors, we understand that creating a balanced retirement income plan involves integrating various income sources, including investments, pensions, and Social Security benefits. This blog will guide you through the steps of crafting a sustainable retirement income strategy that can help you manage your cash flow effectively in your golden years.
Before diving into the specifics of income sources, it’s vital to assess your retirement lifestyle and financial needs. Start by asking yourself:
Once you have a clear picture of your desired lifestyle and expenses, you can begin to identify how much income you’ll need to generate each month. A common rule of thumb is that retirees may need about 70% to 80% of their pre-retirement income to maintain their standard of living.
Social Security can be a cornerstone of your retirement income plan. The amount you receive depends on your earnings history and the age at which you choose to start claiming benefits. Claiming early may reduce your monthly benefit, while delaying it can increase your payments significantly.
Example:
If you wait until age 70 to claim Social Security instead of age 62, you could receive up to 76% more in monthly benefits.
If you're fortunate enough to have a pension from your employer, this can provide a steady stream of income throughout retirement. If you don’t have a pension or want additional security, consider purchasing an annuity to convert a lump sum into guaranteed monthly payments for life or a specified period.
Your investment portfolio will likely play a significant role in funding your retirement. A well-diversified portfolio that includes stocks, bonds, and other assets can provide growth potential and regular income.
Withdrawals from retirement accounts such as 401(k)s or IRAs will also contribute to your cash flow during retirement. Be mindful of the tax implications; for instance, traditional IRA withdrawals are taxed as ordinary income while Roth IRA withdrawals are tax-free if conditions are met.
Many retirees find fulfillment in part-time work or starting small businesses during retirement. This provides additional income and keeps you socially and mentally active.
Once you've identified your income sources, it's time to develop a withdrawal strategy that ensures sustainability:
Longevity Risk
The risk of outliving your savings is real. Strategies like annuities can provide guaranteed income for life.
Inflation Risk
Ensure your investments keep pace with inflation to avoid diminished purchasing power.
Market Volatility
Diversify investments across asset classes to mitigate market fluctuations.
By diversifying investments between dividend-paying stocks and bonds, the Johnsons create a stable cash flow while maintaining growth potential.
Creating a successful retirement income strategy involves careful planning and consideration of various factors such as Social Security benefits, pensions, investment income, and personal savings.
By diversifying your income sources and developing a flexible withdrawal plan, you can achieve the financial security needed to enjoy your golden years without worry.
At Aligned Wealth Advisors, we’re dedicated to helping you navigate the complexities of retirement planning. If you're ready to take charge of your financial future or need assistance in crafting a personalized retirement income strategy, reach out today!
Andrea Ward, CPA
Andrea has worked in the finance industry for nearly all of her professional life. Taking over the family business she continues to combine her tax and investment knowledge to leverage the investment power of money while reducing gains taxes paid to the IRS. She lives in the Fort Worth, Texas area, (although is happy to work with virtual clients all over the United States!) Andrea loves to travel and dabble in home decorating.
Matt Ward
Matt began helping clients in the insurance industry. However, he struggled with big business’s emphasis on selling rather than helping, so he came to work with the family business focusing on investment advisory. In his free time, he shreds the gnar on his snowboard and jams on drums and guitar (but not at the same time).
Aligned Wealth Advisors is a wealth management firm located in Fort Worth TX. With 30 years of experience, we handle financial planning, investment advisory, legacy planning, and estate planning services. For virtual or in-person services, call our office today!
Would you like to signup to our email newsletter?
All Rights Reserved | Aligned Wealth Advisors Powered by CPA Marketing Genius