Shift Your Financial Focus

Shift Your Financial Focus — It's Time to Enjoy Your Years of Hard Work


Shift Your Financial Focus — It's Time to Enjoy Your Years of Hard Work

Once you’re retired and the regular paychecks have stopped coming in, your financial focus shifts from building a nest egg to creating monthly income from your savings. The challenge now is to strategically manage your money so that you have enough to last throughout retirement. 

Strategically manage your money so that you have enough to last throughout retirement.

For decades you’ve focused on accumulating savings to fund your retirement years. Now it’s time to enjoy your years of hard work and start drawing income from your savings. But what’s the best way to do it? For most retirees, this stage in your financial life is a complex puzzle with many moving parts to consider.

Let’s begin with some of the risks that could impact your financial security:

  • Market downturns — Even though your risk tolerance has become more conservative and you’ve probably shifted a portion of your investments away from stocks to help lower market risk, the value of your investments can still decrease when the markets perform poorly, and that can affect your retirement income.
  • Inflation — Budgeting is crucial for most retirees. As you estimate monthly expenses for the long term, be sure to take into account rising costs for food, fuel, health care and other necessities.
  • Taxes — If your income is about the same as before retirement, your taxes may be too.
  • Medical expenses — As you age, health issues can occur, and depending on your insurance coverage, treating an illness could affect your long-term income potential. Keep in mind, Medicare does not kick in until age 65, so there may be a period of time when you will need individual insurance coverage.
  • Extended family needs — Many retirees today are part of the “sandwich” generation, meaning they are taking care of aging parents while still providing for their own children — all while seeking to maintain retirement security for themselves. Keeping your own finances in order could make it easier to help others.
  • Longevity — The good news is, life expectancies are increasing in the U.S. Make sure your income strategies account for the chance that you could live another 20-30 years or more.

Determine your savings withdrawal rate

With so many variables to consider, where do you begin formulating a retirement income plan? As employer pensions become less common, most of us will rely primarily on a combination of Social Security and personal savings to help fund retirement. So how do you convert savings into income? Start by determining your annual savings withdrawal rate. This is the amount of money you’ll take each year from your portfolio, including returns and principal. You will also need to decide which assets to draw down first. Keep in mind that certain distributions from tax-deferred retirement accounts are required once you’re 70 ½. Failure to take a required minimum distribution may result in tax penalties.

Know your options for converting savings into a retirement income stream

Annuities are a popular option for generating a steady and reliable source of payments for a lifetime. Retirees also look to bonds, certificates of deposits, stocks that pay regular dividends, and alternative investments such as real estate investment trusts for generating monthly income. Not all investments and income options are right for everyone – your financial advisor can help you determine which ones make the most sense for you.