By Bryan Lee, CFP®, MBA
Transitioning to retirement can be challenging. You’re used to going to a place you love every morning and doing something you know makes a difference in people’s lives. Even if you’ve been looking forward to retirement, all of that change happening all at once can be mentally and emotionally challenging.
Not only that, but retirement also requires a different perspective when looking at your finances. You have to think about your sources of income, the implication of all those tax-deferred balances, and making your money last the rest of your life while not sacrificing your lifestyle. It’s a lot, but we’re here to help! Here are five questions that will help you think strategically about your retirement income.
1. How Much Do You Need?
This question seems so simple, yet it is often overlooked. Do you know how much income you will need in retirement? Before you can develop a plan for your retirement income needs, you need to have a goal and settle on the destination. If you aren’t sure how much income you will need in retirement, a professional can help you sort through your expenses to give you a clearer picture of your real needs.
2. What Income Sources Do You Have?
Once you know your goal, you need to take stock of the tools available to get you there. What income sources do you have? This could be anything from Social Security and pensions to retirement investment accounts, deferred compensation, rental income, stock options, or taxable brokerage accounts. It is important to analyze your alternative income strategies and review the benefits and drawbacks of each, and have a plan for how they all fit together.
3. Have You Considered Tax Implications?
Having clarified the different income sources available to you, it is important to understand the tax implications of each one. You may have some accounts that are pre-tax and others that are post-tax, and then there is Social Security, which is taxed based on how much total taxable income you have. It is critical to review the tax status of your accumulated assets in order to develop a tax-efficient withdrawal strategy to generate your income.
4. How Should the Money Flow?
Your cash flow is simply the flow of money into and out of your hands. A cash flow plan, commonly called a budget or spending plan, is simply a written document showing where your money is coming from and where it is going to go.
While you are working, cash flow planning is simple in that you usually only have one or two sources of income that are fairly fixed. All of your planning goes into the outflow, not the inflow, of resources. In retirement, it gets more complicated. You now have multiple streams of income and can sometimes turn them on or off as needed. You need to do a more in-depth cash flow planning analysis to determine the best route for turning your assets into income.
5. What Is Holding it All Together?
You’ve worked hard for decades and been diligent with your finances to get you where you are today. Now that it is time to start drawing from your hard-earned resources, you need to have a plan in place to protect them in the coming years. Having a disciplined process can help reduce the impact of short-term market volatility on your income and preserve your wealth for the rest of your life and the generations to come.
Retirement will be a rewarding time in your life to spend with family and friends. We at Strategic Financial Planning want you to enjoy your time as a retiree, and that’s why we are here to guide you through retirement and answer any questions you may have. Let us help you. Call (972) 403-1234 or contact us online to set up a complimentary get-acquainted meeting so we can see if we are a good fit!