Managing Your Retirement Income
By: Sandra Fleming, market leader for The Private Client Reserve of U.S. Bank in Palm Beach
It can feel quite strange when the day comes that your retirement savings become retirement “income.” After all, most people save long and hard for their retirement, and it might feel almost overwhelmingly liberating – finally, the emphasis isn’t to save anymore, but rather, to spend! So let’s begin managing your retirement income starting today!
However, even as you shift into a new lifestyle of enjoying your hard-earned reward, wise people know that retirement planning does not simply stop because they’ve reach retirement. And just as there has been a shift from saving to spending, there is a parallel shift from generating enough retirement income to managing your retirement income.
So how does one manage retirement income? For one, it’s somewhat different from managing regular income. It’s first and foremost important to understand the breakdown of your retirement income sources, and how to access these resources:
- Regular retirement sources, such as social security, pensions, annuities and 401(k)s are the most common type of resources Americans use. These have age and distribution requirements built in, and should be the first income source you access
- Earnings and income includes earnings you gain from bonds, dividends from stocks, or capital gain distributions from mutual funds. Part-time work in retirement, or income from projects such as rental properties are also included. This income source is flexible and can be accessed next.
- If additional money is needed, you can tap your assets and investment drawdown through asset liquidation. Remember to keep the drawdown as tax-efficient as possible.
Once you have taken stock of your various income sources, you can start to establish strategies to potentially maximize savings and investments while minimizing taxes. When considering consolidating, organizing or reallocating the retirement portfolio, keep in mind the following factors:
Risk: risk is a function of time, and once in retirement, risk should be minimized for all investments to potentially avoid significant income loss if there is a downturn in markets.
Timing: once in retirement, market fluctuation start to have an outsized influence on investments. If investments make up a major source of your income, “selling high” might not always be possible due to the timing of your needs and market conditions. In this case plan ahead as much as possible.
Taxes: tax brackets for retirees vary based on income, and can range from 10-39.6 percent. There are ways to minimize income taxes that savvy retirees should look into with a tax consultant in conjunction with a financial advisor.
Longevity: while no one wants to think it, knowing when you’ll pass away would make retirement income much easier to manage. But we don’t have that crystal ball. Instead, plan to have you retirement income last until a realistic age, and then restructure the sources and investments as you approach that age.
Contrary to what many of us would like to do during retirement – spend the money we’ve earned and enjoy ourselves without a second thought – retirement income must be managed. Recognizing your retirement sources, using them in order, and strategizing to maximize your income will go a long way in ensuring a piece of mind.