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Prepared for: Sally Smith |
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| | Retirement Income: the Transition into Retirement |
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July 15, 2008
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| |  | Retirement Income Chart
Calculator results.
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| |  | Are You Ready to Retire?
The question is actually more complicated than it first appears, because it demands consideration on two levels. First, there's the emotional component: Are you ready to enter a new phase of life? Do you have a plan for what you would like to accomplish or do in retirement? Have you thought through both the good and bad aspects of transitioning into retirement? Second, there's the financial component: Can you afford to retire? Will your finances support the retirement lifestyle that you want? Do you have a retirement income plan in place?
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| |  | Timing Is Everything
When it comes to transitioning into retirement, timing really is everything. The age at which you retire can have an enormous impact on your overall retirement income situation, so you'll want to make sure you've considered your decision from every angle. In fact, you may find that deciding when to retire is actually the product of a series of smaller decisions and calculations.
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| |  | Do You Plan to Work in Retirement?
An increasing number of employees nearing retirement plan to work for at least some period of time during their retirement years. The obvious advantage of working during retirement is that you'll be earning money and relying less on your retirement savings-- leaving more to potentially grow for the future and helping your savings to last longer.
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| |  | How Much Annual Retirement Income Will You Need?
How much annual income will you need in retirement? If you aren't able to answer this question, you're not ready to make a decision about retiring. And, if it's been more than a year since you've thought about it, it's time to revisit your calculations. Your whole retirement income plan starts with your target annual income, and there are a significant number of factors to consider; start out with a poor estimate of your needs, and your plan is off-track before you've even begun.
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| |  | Retirement Income: The "Three-Legged Stool"
Traditionally, retirement income has been described as a "three-legged stool" comprised of Social Security, traditional employer pension income, and individual savings and investments. With fewer and fewer individuals covered by traditional employer pensions, though, the analogy doesn't really hold up well today.
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| |  | Asset Allocation
Your asset allocation strategy in retirement will probably be different than the one you used when saving for retirement. During your accumulation years, your asset allocation decisions may have been focused primarily on long-term growth. But as you transition into retirement, your priorities for and demands on your portfolio are likely to be different.
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| |  | Making Portfolio Withdrawals
When planning for retirement income, you'll need to determine your portfolio withdrawal rate, decide which retirement accounts to tap first, and consider the impact of required minimum distributions.
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| |  | Investment Considerations
A well-thought-out asset allocation in retirement is essential. But consideration must also be given to the specific investments that you choose. While it's impossible to discuss every option available, it's worth mentioning investment choices that might have a place in the incomeproducing portion of your overall investment strategy.
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| |  | Health-Care Considerations
At any age, health care is a priority. When you retire, however, you will probably focus more on health care than ever before. Staying healthy is your goal, and this can mean more visits to the doctor for preventive tests and routine checkups. There's also a chance that your health will decline as you grow older, increasing your need for costly prescription drugs or medical treatments. That's why having health insurance can be extremely important.
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