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Living the good life and paying your own way

A generation ago, retiring often meant slowing down, taking it easy, maybe playing a few rounds of golf and just generally reveling in not having to get up and go to work. Today, the early phases of retirement are often a transition period – a time to redefine oneself. Many of today’s retirees ramp up their activity level as they travel, take classes, get involved in hobbies, volunteer and even work part-time. If that sounds like what you’re aiming for, your retirement income needs may stay the same as your preretirement needs, or even go up.

Shift your financial focus

Now that the regular paychecks have stopped, your financial focus shifts from accumulating savings to creating monthly income from your savings. During these early years in retirement, when your expenses and spending patterns may closely match what they were just before you retired, you need to be aware of risks to your financial security, including:

Early in retirement when you are active, you may need as much income as when you were working.

  • 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.
  • Taxes — If your income is about the same as before retirement, your taxes may be too.
  • Medical costs — 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 support to their own children all while maintaining retirement security for themselves. Keeping your own finances in order will make it easier to help others.
  • Longevity —Make sure your income strategies account for the chance that you could live another 20-30 years or more.

Maximize your income options

To help maximize and protect your savings and retirement income, here are a few steps to consider:

  • Manage expenses — Create a budget so you can track expenses and income. This will help you avoid overspending early in retirement, which could put you in a bind later on.
  • Create a withdrawal strategy — Decide how much you can withdraw from your savings accounts each year and prioritize withdrawals from taxable and tax-deferred accounts.
  • Be tax smart — Combine withdrawals from tax-deferred accounts like 401(k)s and traditional IRAs with tax-free accounts like Roth IRAs to manage your taxable income.
  • Diversify your investments — Make sure your investment portfolio still provides the potential for some long-term growth along with some protection and stability.
  • Go back to work — No, not at your old job. Many retirees get satisfaction from moving into new lines of work, or starting their own business. It can augment income, provide structure, and allow for challenging new opportunities.

Be proactive

As long as you’re active and living a full life in retirement, you should continue to refine your goals and make adjustments to your retirement income strategy, as necessary. Consult with a financial professional to help keep everything on track.

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