Defining your retirement vision and timeline is an important first step in the planning process. Next, we need to answer how you will recreate your paycheck. Our job is to help you assess both sides of the equation:
- Income Needs – how much do you need?
- Income Resources – where will the money come from?
First, take assessment of your sources of income, because they’re probably several. Will you still be earning income in some capacity? What will your Social Security paychecks look like? Is there a company pension or real estate income? Think of all the resources that will not require you to tap into a savings or investment account.
The reality for many is that without company pensions or other fixed income, Social Security in itself will not be enough to support you in retirement. The onus will be on you and your own savings to recreate part of that paycheck. To what degree depends on your spending needs.
So then, consider all the different expenses you’ll have and break them into four distinct categories.
Needs – Start by considering the basic expenses of your retirement – the bills that won’t go away. Will you still have housing expenses? Health care bills? Food, clothing, taxes, utilities? If these expenses are essential to you and will be consistent throughout retirement, it makes sense to have a consistent income stream to cover those expenses.
Wants – Once you have the essential expenses, or “must haves” covered, we can focus on the “nice to haves” or your lifestyle expenses. These are the “want tos” or the things you can live without from time to time. We usually describe these things as entertainment. Who likes to travel? Go shopping? Golf? Go out to eat? Spoil grandkids? The key here is to build a suitable investment and withdrawal plan to access your savings, regardless of market movement.
Uncertainty – There are only two sure things in life – taxes and dying. For everything else, we need to plan for the certainty of uncertainty over time. We will discuss health care, long-term care, legal liabilities, emergencies and opportunities. The key is to understand your risks and decide HOW TO or IF you want to address them before they actually occur and the choice is gone.
Wishes – And lastly, you’ll want to consider the “pie in the sky” expenses or the legacy you might want to leave with the pour over money from the first three buckets.
The objective here is to identify the gap between your income need/wants/wishes and your income resources and in doing so, think about how that gap may change over time. That gap represents the amount of money you should have in savings to make up the difference in any given year. This will help us with the next step in the process, defining your lump sum savings need.
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Securities offered through LPL Financial, Member FINRA and SIPC. Investment advice offered through U.S. Financial Advisors, a registered investment advisor. U.S. Financial Advisors and Haas Financial Group are separate entities from LPL Financial.