Common Questions in Retirement- Part 1
My retirement clients have a lot of great questions for me in our meetings. And many are the same or similar questions. It’s why I’m answering some of them in this common retirement questions series to help any of you who may be wondering the same things.
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One question I get often: How can I budget for retirement?
To budget well, you’ll need to compare your retirement income with your expected expenses. You should determine if you’ll get a pension, how much you can expect to get from Social Security, how much you have saved in retirement plans… as well as things like, do you still have a mortgage and if so, how much do you still owe.
You should also take a look at your current expenses and see if there is anything you may be able to eliminate to give yourself some leeway.
Categorizing your spending by “necessary” and discretionary” is a great step. It will be helpful to match your necessary expenses like healthcare, housing, food and transportation to your guaranteed sources of income. Then other spending categories like travel and entertainment can be matched to income from any additional retirement accounts you may have.
Think to yourself, can you take on a part-time job on the side or start your own business to cover more discretionary expenses? You should limit retirement account withdrawals to about four percent in year one and factor in inflation for future years.
Another question: What are my costs and fees in retirement?
You may not be thinking about costs and fees from your retirement accounts and investments, but they can add up before you know it.
For instance, if you take a look at 401(k)s alone, you can see they come with investment fees, administrative fees and service fees. This is because someone is managing your account, so you are paying for management and services.
401(k) fees are disclosed on statements. You should pay close attention to any value labeled on your plan as an asset-based fee, operating expense, or expense ratio. If you think your fees are high, there may be an option for you with a lower fee.
The last question I’ll answer in this first video is: How can I get guaranteed income?
For this, I mainly focus on pensions, Social Security and annuities.
If you’ll be getting a pension, it may be best to take the money as monthly income rather than a lump sum. This will mean you may be less likely to run out of money and won’t need as strong of investment skills.
When it comes to Social Security, it may be best to hold off on drawing benefits as long as you can. Your benefits increase in percentage each year plus inflation until reaching age 70. It may be better to draw increased benefits rather than reduced, or even full ones. This may mean you start drawing from savings and retirement accounts before drawing Social Security.
If you’re looking for another source of guaranteed income, an annuity or annuities may be a great option for you… especially if you’re without a pension. By putting a sum of your money in an annuity where it can grow interest, you can get a monthly check once it’s annuitized. I recommend my clients go with a fixed index annuity.
Annuities contain limitations including withdrawal charges, fees and a market value adjustment which may affect contract values.
Annuities are products of the insurance industry; guarantees are backed by the claims-paying ability of the issuing company. Guaranteed lifetime income available through annuitization or the purchase of an optional lifetime income rider, a benefit for which an annual premium is charged.
Get onto retirementadvisers.net to schedule a time to speak about any of these topics in more detail.
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