It’s common for people to spend decades working in their respective careers or occupations.
If that describes you, ideally you spent all those years working, saving, and storing up money to properly fund your retirement years. Once the long awaited date finally arrives, you officially retire! Congratulations!
Oh, there’s just one more thing, you don’t have a paycheck anymore! So now that you’re retired, where do you get income from and how much do you need? Good question. Normally you take income from your assets earmarked for retirement. These can be in the form of regular cash flows like social security, or large balance plans, like a 401k plan.
Now this is key: the idea is to time your new income to begin precisely when your paycheck stops…and have a seamless happy trail into retirementland!
This is an area where we see some people get caught off guard. They don’t know where to begin or how to start taking income from their assets. So, where do you start? Do you call your banker, broker, or bookie? Remember, you won’t receive a paycheck anymore, but you still need income. Now you might be tempted to wait until after you retire and then set up your income, but this might cause your income to be delayed while you’re designing it – it takes time to set this up. Imagine THAT conversation with your spouse, “Uh, honey we’ve have no income right now because I didn’t turn my forms in on time, it’s just for a month or two.”
5 Star Tip: Get your income plan in place BEFORE you retire!
More than likely you will be coordinating multiple sources for income; at a minimum there might be a 401k plan, IRAs, pensions, and then there’s social security. Also, you might have some after-tax accounts in the mix as well.
Not only do you need to coordinate the income from all these sources, but you also have to decide how much income you need. Be careful here - if you take too much income, you could run out of money later during retirement! Cue up the ‘door greeter at Walmart’ jokes!
What can help in a situation like this is to run a Retirement Cash Flow Analysis (RCFA). This can help give you an idea of the amount of income you can take during retirement. A RCFA takes into account your different sources of retirement income. It can incorporate retirement accounts and cash flows such as 401ks, profit sharing plans, pensions and social security just to name a few. It also takes into consideration inflation, interest and taxes. It’s a powerful tool that projects your income over your actuarial life expectancy. Part of this projection is a social security analysis; so you know your best options to maximize your social security benefit whether single, married, divorced or a widow(er).
Once you know how much income you need, then it’s just a matter of setting your accounts up for withdrawals. If you have pre-tax and after-tax accounts, you might want to balance your income between them, depending on your circumstances. Lastly, don’t forget our favorite charity - the IRS; you may want to set up federal withholding for taxes on the income from your retirement accounts.
See how easy this is? Actually we understand this can be a bit overwhelming for some. Just remember this is one of our specialties and if you would like assistance, we are only a phone call or email away. Happy retirement trails to you!
The content is developed from sources believed to be providing accurate information. The information in this material is not intended as tax or legal advice. It may not be used for the purpose of avoiding any federal tax penalties. Please consult legal or tax professionals for specific information regarding your individual situation. The opinions expressed and material provided are for general information, and should not be considered a solicitation for the purchase or sale of any security.