Retirement Planning Today Will Benefit You In The Future
What does your income look like in retirement? Will you need to work part-time? Do you want to start a new business? Do you want to travel the world? These are all questions to ask yourself when retirement planning. To retirement plan is to plan for what you want your life to look like after paid work ends and that takes on many different forms in today’s world.
As you move through life, the emphasis that you put on retirement planning probably changes. Life events like marriage, divorce, kids, and job changes all affect your retirement plan. As you read this today, you can look at your specific job space, or business, and what your paychecks look like then compare that against your monthly budget to understand money in and money out. That same kind of space isn’t going to look the same in retirement. This is where a financial advisor can help break down what your goals and objectives are and how you can reach them in retirement.
What does your life look like in retirement? Everyone is different but this list includes three big areas of consideration for you to review with your financial advisor and/or tax accountant. Let’s dive a little deeper.
Portfolio Income or Investment Income
What are the sources? What is a healthy amount to consider for distribution?
There are scores of data points, books, and manuals about how portfolio income should look in retirement. One of the first things we do with our clients at North Main Financial is to break down where their investments currently sit. As you are approaching retirement, you should look at your portfolio and understand its ability to generate a cash flow income. You may also want to discuss what may be a liquidation or redemption strategy to supply income going forward.
Everybody’s portfolio is different and the ability of each portfolio to generate income is different. One thing we do with frequency at North Main Financial is to manage the assets within the portfolio of our clients to ensure that they will meet our client’s needs today and going forward.
Retirement takes on a very different tint than it did 20, 30, 40 years ago. Retirement is a much longer experience, on average, than it was a generation ago. Because of that, the ability to generate income or the need to provide income for our clients takes on a much more expansive picture. In addition to our normal planning for today, we must look at a portfolio over many decades. It’s not just about the ability to produce income for you today but what about 10 years from now, 20 years from now? It’s very possible that your experience in semi-retirement, or retirement, is going to be just as long, or longer than your work experience has been.
Understand the gravity of that thought process. There are many considerations as you’re looking broadly at this idea of retirement income, and then specifically looking at your portfolio or investments. Think back 20, 30, 40 years ago and remember what things cost. There are a couple of real easy examples. For those of you who purchased a vehicle in the ‘70s or ‘80s, think about the cost then compare to today. In addition to that, think about grocery bills. Expenses have gone up significantly in that time frame and so you need to consider what prices will be 20, 30, 40 years into the future when you are looking at your retirement income.
We want to be mindful of what impact that has today and the ability of your portfolio, or investment, to produce the income you require and expect today but also to look at it going forward. Can that principle grow? Is it something you’ll be able to increase in income draw in future years in retirement? You need to be flexible enough and have a portfolio that’s flexible enough to address those needs going forward.
When can you take it? What is the maximum you can draw? How does it factor into our overall financial plan? Will it be around when I retire?
This topic could be multiple shows on its own but we’re going to hit on a couple of top-level items here. Keep in mind that if you have enough qualifying quarters, you may be able to take your Social Security income earlier than what would be considered your normal retirement time. For most folks that normal retirement time is 66, 67, 68. If you desire and have qualified, you may be able to take a reduced income of your full Social Security income at age 62. One additional thought, most people can reach their maximum Social Security income potential at age 70. If you are a widow or widower, and your spouse qualified for Social Security, you may be able to take your Social Security income at age 60. Again, there are a lot of variables involved so it’s important to reach out to your financial or tax advisor to evaluate your situation.
If you are still earning income, how much income are you earning? In addition to the above-mentioned parameters, earning income after you reach the age to collect Social Security can provide another challenge. There is a possibility you may disqualify yourself from a portion, or all, of your Social Security income if you are earning too much income in retirement. You must stay under the qualification levels from an income or earned income standpoint, so you don’t give up some of the Social Security income you have coming in.
How does this fit into your overall picture? This is where you reach out to your financial planner or tax advisor to determine when it will be most beneficial for you to take your Social Security income.
Generating Income in Retirement
Will you have a part-time job? What does employment look like in retirement?
It is likely that for your grandparents when it came time to retire, there was a hard stop. There may have been a pension involved, or the opportunity to draw on Social Security, but there weren’t many people looking to work after that retirement date. Today, that looks very different. We’ve seen an evolution because of an increased life expectancy. We are seeing many people working a part-time job or having some level of part-time income after their more formal retirement. That’s something that’s very different from a planning standpoint compared to a generation ago.
Perhaps you’re off the treadmill of formal employment but you are now working somewhere part-time to supplement your income. Think about how that goes together. Would you like to start a business or work in a part-time job that’s not as strenuous? This additional income affects things like Social Security income and how much you would need to draw from your portfolio.
Remember that retirement planning starts well before it’s time to retire. At North Main Financial, we sit down with our clients and figure out how all these puzzle pieces fit together. The combination of portfolio income, Social Security, and a possible part-time job, among other things, all combine to form your retirement income. Consulting with a financial advisor on retirement planning will help you to stay organized and think of all the variables such as inheritance, tax ramifications, insurance, and the three points we outlined above among others. The right financial advisor can help you reach your short and long-term financial goals so you can be successful in your working and retirement years.
Interested in hearing more about this topic? You can listen to the full episode of the North Main Financial radio show on WSIC by clicking here: Retirement Income Planning (6/29/19)
If you have questions about your financial goals or would like to talk with us further about our services, give us a call at (704) 987-1425 or visit us at www.northmainfinancial.com. If you wish to schedule an introductory meeting, we would be happy to meet with you at no cost or obligation to you.
These Blogs are provided for informational purposes only and should not be construed as investment advice. Any opinions or forecasts contained herein reflect the subjective judgments and assumptions of the authors only and do not necessarily reflect the views of SagePoint Financial.