Retirement income planning is an important part of creating a financially stress-free living situation as you get older. Unfortunately, it is a process that can also often be overlooked as you start planning your retirement. If you spend your 20s and 30s preparing your nest egg by putting money into stocks, bonds, mutual funds and other long-term investments, at some point you will need to convert that savings into accessible income that you can use to sustain yourself. Your income requirements will vary based on your dream retirement scenario. Maybe your goal is to keep house in which you raised or family, or maybe you want to downgrade to a small condo with designs on taking an annual trip for every year of your retirement.
All of these retirement income planning goals can be possible with assistance from the right financial advisor and some diligent planning during your younger years. Retirement income planning can be confusing if you are not a financial expert or are unsure of how to create a steady, comfortable financial stream from your current portfolio of investments. Seeking the advice of a personal finance planner can help you determine which retirement income planning options work best for your lifestyle, goals and desired standard of living.
Many options for retirement income planning are available to people as their careers start to wind down, although not all plans work well for everyone. The overall size of your nest egg, the amount you are willing to risk for higher returns and your desired annual income will all play big roles in your retirement income planning. Two universally sound plans that everyone should consider are 401k plans and individual retirement arrangements, or IRAs. Many companies offer 401k, allowing employees to contribute directly to their account through automatic withdrawals. Some companies even match your contributions up to 100 percent. Although there are limits to the amount of income you can contribute in a given year, you can access the savings you have accumulated without penalty once you reach 59 1/2 years of age.
IRAs operate similarly, allowing you to make contributions up to $5,000 annually or $6,000 annually if you are over the age of 50. As with 401k plans, you can make taxable withdrawals penalty-free once you are 59 1/2 years old. The idea behind deferring tax until you retire is that your income is often lower than when you were employed, meaning you will pay a lower tax percentage. If you prefer to pay taxes as you contribute and withdraw money tax-free, you might consider a Roth IRA. Annuities are another popular option. These plans allow you to invest an unrestricted sum in an account that pays regular dividends, either monthly, quarterly or annually. In some cases you can even receive you annuity in a lump sum.
Since you have less time to wait out the natural ebbs and flows of the financial market as you get older, you can protect yourself from the risk of hitting a dip when you need your money by putting your nest egg in low-risk accounts once your reach retirement. For example, you might want to take your money out of the stock market once you have retired and put that savings in a less exciting, albeit more reliable account like a treasury bond. Certificates of deposit can offer another low-risk option, although these accounts are less accessible and can sometimes carry penalties for accessing the account before a certain time.
Ultimately, the role risk will play in your retirement income planning will depend largely on your comfort with it. Conventional financial planning often suggests converting your savings to more conservative and liquid accounts as you get older, but if you are comfortable with high-risk accounts and can financially withstand the potential losses, keeping high-risk investments like stocks might be an option for you. A professional financial manager can help you balance your risk preferences with your savings and to determine a sensible strategy that fits both your budget and your personality.
The advantages of having a financial advisor you can trust while undergoing the retirement income planning process can make a world of difference in creating a financially reliable income you as well as boosting your overall happiness during retirement. Retirement income planning doesn't have to be dull, nor does it have to be confusing. Finding a local financial advisor can give you the support you need to make smart decisions while also giving you a voice as to what your ideal living situation looks like after you retire. Working with a financial planning expert can ensure that you choose a plan that sees you through many well-lived years while catering to your risk preferences and desired lifestyle.
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