Determining Retirement Income – HighPoint Advisors, LLC

One of the most common goals that we work toward with our clients at HighPoint Advisors, LLC, is planning for their retirement. When doing this, the main objective is to figure out how to pay for that client’s retirement. In other words, we need to determine how much income will be required to cover all the bills and expenses for many happy retirement years.

HighPoint Advisors, LLC, helps clients in Syracuse, NY, and many other areas across the country with a wide range of financial services, including retirement planning.

This task has become more complicated in recent years due to traditional pensions becoming increasingly rare, making planning for your retirement income more crucial than ever. More individuals and families are left relying on Social Security and personal savings. This doesn’t have to feel like a daunting task. Here, we’ll discuss how to navigate the process of determining how much monthly income you’ll need in retirement. Along the way, we’ll highlight some practices and common pitfalls to avoid.

Where to Start: Expenses

Do you have a budget now? You’ll need a budget in retirement, too. Many professional advisors suggest that a good starting point for estimating your income needs in retirement is to aim for 75 percent of your pre-retirement income. We suggest being a little bit more precise, and a good way to do that is to estimate your actual expenses. Here are some major categories to think about:

Housing costs: Mortgage and taxes on a house, insurance, maintenance and upgrades, HOA fees, etc.
Debt obligations: Car loans, unpaid credit cards, personal loans, home equity loans or mortgages, etc.
Healthcare costs: Insurance premiums, prescriptions, out-of-pocket costs, long-term care costs, etc.
Lifestyle: Streaming services, mobile phones, subscriptions, etc.
Travel and leisure: Vacations, entertainment, hobbies, etc.
Unexpected costs: House repairs, health emergencies, natural disasters, pet expenses, etc.

Budgeting varies widely based on individual lifestyle choices and health considerations. Once you have a good idea of what you spend money on today, you can project what you’re likely to spend money on tomorrow. Many retirees find that some expenses decrease in retirement, while others may increase.

What Income Sources Do You Have?

Now that you have a good picture of what will need to be paid for in retirement, let’s make sure you’ll have the income to cover it all. Let’s review some of the main sources of retirement income:

Pensions: A steady monthly payment from a previous employer that will pay for at least as long as you live. Not as common nowadays.
Social Security: The monthly payment you receive based on your working history and payroll taxes paid into this government system over your working years.
Retirement accounts: 401k, 403b, IRA, and other retirement investment accounts. Withdrawals from these accounts can supplement other fixed-income sources of income.
Annuities: If you have purchased annuities, these can provide a steady income stream.
Personal investments and savings: Dividends, bond interest, and other investment distributions should be included as well.
Part-time work: Some retirees choose to work part-time to supplement their income.

Excess or Shortfall

Once you’ve estimated your expenses and identified your income sources, what do the numbers say? Your calculations will point out any potential gaps or confirm that you may have some leftover income each month. If your anticipated monthly expenses exceed your projected income, you’ll need to either adjust your lifestyle expectations, increase your savings, or explore other income-generating options. Either way, starting to plan early will give you the flexibility to make changes if you need to.

Some Best Practices for Retirement Income Planning

Make a comprehensive budget: Craft a detailed budget for retirement expenses. Monitor it and regularly update items as needed (or as your spending changes).
Consult with a financial advisor: Professional advice can provide personalized strategies to optimize your retirement income and help you determine when and how to claim various income sources.
Be flexible: Plan for life to be unpredictable. Adjust your income sources or spending habits as things change in your life – both financially and personally.
Plan for longevity: Build in a buffer so you don’t run out of money! People are living longer due to medical advancements and lifestyle adjustments, so retirement could be measured in decades.
Maximize contributions to retirement accounts: Increase how much you contribute to your 401k (or similar) plan at work and take advantage of any employer match. Make contributions to IRAs and other savings accounts, and don’t forget to diversify investments.
Consider a Roth IRA: Roth IRA withdrawals are tax-free in retirement, so consider adding this to your retirement planning.

Try to Avoid These Common Retirement Planning Pitfalls

Don’t forget about taxes: Most retirement income sources are considered at least partially taxable income, so don’t forget that you have to account for paying income taxes each year.
Healthcare costs can add up: Many healthcare costs are unknown until they happen. Be sure to understand that prescriptions, Medicare, and long-term care expenses can vary widely.
Inflation is real: Historically, the price of goods and services has increased by about 3 percent a year, and that can eat away at your monthly income. Don’t forget to leave room to increase your withdrawals over time.
Never neglect education: Just because you’ve made a good retirement income plan doesn’t mean you don’t have to keep up to date with trends and things that can impact your finances.

Let’s Create Your Retirement Income Plan

To sum it all up, determining your retirement income needs requires mindful consideration of your unique circumstances, goals, and available resources. By starting early, planning carefully, and avoiding common mistakes, you can work toward setting yourself up for a financially secure and comfortable retirement. At HighPoint Advisors, LLC, our experienced advisors help guide you toward a fulfilling retirement no matter what stage of life you’re in. Whether you are just beginning to save for retirement, or are already retired, we are happy to help.

We provide a wide range of financial services for clients in Syracuse, NY, and beyond with a wide range of financial services, including retirement planning, wealth management, and investing.

There is no guarantee that a diversified portfolio will enhance overall returns or outperform a non-diversified portfolio. Diversification does not protect against market risk.

Investing includes risks, including fluctuating prices and loss of principal. No strategy assures success or protects against loss.

A Roth IRA offers tax deferral on any earnings in the account. Qualified withdrawals of earnings from the account are tax-free. Withdrawals of earnings prior to age 59 ½ or prior to the account being opened for 5 years, whichever is later, may result in a 10% IRS penalty tax. Limitations and restrictions may apply.