Designing and sustaining an income plan to support your desired standard of living over your retirement years is a most challenging financial planning job. The bar is rising as life spans continue to expand due to medical advances and as retirees wake up to the risk that inflation imposes on a fixed income – no more pay raises!
Retirement income planning starts with an honest assessment of what percentage of your current earned income you must be replace to create an acceptable standard of living – based on the current purchasing power of a dollar. The starting point is your combined earned income, subtracting employment related expenses: contributions to retirement plans, commuting expenses, etc. The income replacement ratio can range from 50% to 125%, depending on your goals and to the extent that you have delayed gratification during your working years by saving.
Once your income goal is defined, your sources of income must be prioritized; taxation often dictates the withdrawal order. After pension, Social Security, rental or business income, spending down taxable investments are the next source, followed by tax-advantaged assets (cash value of life insurance and qualified plan assets). The order of Roth and IRA withdrawals will depend on your age and required minimum distributions.
Monte Carlo probability analysis can determine if your resources will support your inflation-adjusted income goal with an acceptable level of comfort and confidence.
To maximize your retirement lifestyle, think in terms of a two-stage retirement: budget higher income during the first half of your retirement when you will be most active, decreasing your target income goal during the second phase when you can no longer spend at the same pace.
As retirement income specialists, we can help you create a balanced income plan and avoid worry and concern in your golden years.
