While making long-term financial plans, one question to ask is, "What is a good monthly retirement income?" A savings strategy can provide them with that answer directly.
Figuring out how much money someone will require every month depends on their unique retirement visions, goals, and lifestyle choices. It would help if they remembered that no two people are alike.
Envision Your Retirement
Envisioning the future can help when planning a dream retirement. How does a person see themselves spending this part of their existence? Do they want to spend time traveling or downsize and move to a condo on the beach?
Taking time to assess the situation and think about how individuals want to live their lives after retirement can help plan for it. Once they leave the workforce, the above will give them a good starting point for forecasting their expenses and then creating a plan to get there.
Do Some Estimates
Using the four percent rule is one way to ballpark monthly expenses in someone's retirement. The directions recommend taking out no more than four percent from retirement savings during the initial year of retirement. From there, a person can continue withdrawing a similar amount in the following year, considering that they would need to take more to account for inflation.
The four percent rule has its limitations, of course. Say, for example, if it was built around an investment portfolio with an equal number of bonds and stocks. Speaking to experienced Pittsburgh PA financial planners is an excellent way to customize a person's retirement income plan to suit their specific needs.
Consider Standard Financial Risk Factors
Once someone has calculated how much income they will require in retirement, the next part is figuring out how to place their assets. Structuring a retirement plan for living longer can support an individual's wants and needs during their post-working years.
A person will have to monitor how inflation and market volatility affect their investment and adjust accordingly. The next thing that they should think of is taxes! It's crucial to remember that people will be taxed on those transactions when it's time to withdraw funds from a traditional IRA or 401(K).
It's also wise to plan correctly for possible long-term care and health care costs. People can potentially preserve their retirement savings and live a longer life by doing this.
Build a Robust Investment Portfolio
If someone wants to live in retirement comfortably, it might require that they have a variety of incomes sources to draw on, including but not limited to:
Annuities, pensions, and Social Security can provide people with a reliable monthly income. Can be important to try and use the revenue generated from these sources to cover all necessary expenses.
Traditional IRAs and 401(k)s allow people to build a nest egg using pre-tax contributions and are powerful retirement-saving vehicles. Using these accounts can lower taxable income during working years.
Roth 401(K)s and Roth IRA let individuals enjoy tax-free distributions in retirement because they are funded with after-tax dollars. These schemes can be used with table accounts to manage retirement tax liability.
While life insurance equity increases the longer it's held, once a policy has accumulated value, a person can start withdrawing from the accumulated cash value if required. It can be considered an option to plan for market volatility.
If someone wants additional options, one of the best ways to get it is to have cash reserves. It's an excellent idea to have two years' worth of income on hand in accounts that are accessible and liquid. A person can then withdraw these funds whenever they need them without worrying about significant taxes or a risk of a penalty.
Conclusion
The last thing someone wants to think about is their retirement income strategy, as they plan the legacy they want to leave behind for their family. People can create a plan that accounts for the assets they wish to go to their heir and increase their income while still alive.
That is why there is no one good answer for the question, "What is a good monthly retirement income?' It would be best to team up with a skilled financial advisor to create a clear road map for working toward your retirement goals. If you want to know more information, such as how to calculate your retirement age, they are more than capable of helping you find out.
This material was prepared for The Kelley Financial Group.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which strategies or investments may be suitable for you, consult the appropriate qualified professional prior to making a decision. This information is not intended to be a substitute for specific individualized tax, legal, or investment related advice. We suggest that you discuss your specific situation with a qualified tax or legal advisor.
Fixed and Variable annuities are suitable for long-term investing, such as retirement investing. Gains from tax-deferred investments are taxable as ordinary income upon withdrawal. Guarantees are based on the claims paying ability of the issuing company. Withdrawals made prior to age 59 ½ are subject to a 10% IRS penalty tax and surrender charges may apply. Variable annuities are subject to market risk and may lose value.