Create sources of lifetime income

the last paycheck

retiring means stitching together different sources of income.

When you retire, you’ll share a common experience with everyone who has already made the change: You won’t get a paycheck anymore.

Without this steady stream of revenue, you’ll have to arrange for the income you’ll need. Specifically, you’ll want to answer the following questions:

• What sources of income are you confident you can count on?

• How much income will they provide each year?

• How and when will the income be paid?

• How will you coordinate payments from different sources to create a steady stream of income, so that there’s money in the bank when you need it?

What The Sources Are

You’ll probably count on income from a number of different sources.

Social Security income is paid to people who contribute to the system, and to their surviving spouses.

Defined benefit pensions are designed to provide lifetime income from a plan your employer creates and funds.

Defined contribution plans, such as 401(k) plans, are designed to provide income from contributions and earnings on those contributions, which may be made by you, your employer, or both.

IRAs are individual retirement accounts. You contribute income you’ve earned to produce tax-deferred investment earnings that you can withdraw after 59 1/2 as retirement income.

Annuities are fixed or variable insurance company products that allow you to convert your premiums and any tax-deferred earnings to lifetime income.

Personal investments in taxable accounts can provide interest, dividends, and capital gains to use as retirement income or reinvest.

Jobs can provide income if you want to work and work is available.

realistic expectations

the smartest approach to planning a satisfying retirement is having realistic expectations.

The first step in making sure your expectations for retirement are realistic is having a clear sense of what you’ll be spending, both on the everyday costs of living and on the special activities you’re planning.

Ways And Means

The widely accepted, and often repeated, retirement rule of thumb is that you need between 70% and 90% of your preretirement income to maintain your standard of living after you stop working. That formula may be too simplistic, though, to figure what you’ll actually be spending.

One place to start is to calculate what the essentials are costing you right now: food and clothing, heat and home maintenance, utilities, insurance, and property taxes. You can be fairly confident you’ll go on paying these bills and that inflation will push their cost up.

Next, think about the things you’re likely to spend less on. Your mortgage may be paid off, you won’t be commuting, and maybe your financial responsibilities for children and parents will come to an end. You may be paying less in income tax, and after you retire you’re no longer paying into Social Security.

But also consider the additional expenses you may encounter, such as medical and dental care and the cost of your plans for winter in a warm place and summer in a cool one, or perhaps long-postponed trips or classes and equipment to master new skills.