By Jon L. Ten Haagen
Retirement: You had better pay attention and be at the helm. Finding a secure retirement means charting the right course and making mid-course adjustments as they are needed.
Do your part because your retirement income will not happen by itself. The income that may make the difference between having to pinch pennies and having the money you need in retirement is the extra cushion of cash that comes from long-term investments you make during your working life and investment decisions you continue to make after you retire.
People who are living comfortable retirements typically count on income from various sources, such as employer plans, Social Security, their investments, and sometimes money from selling their home and downsizing. The challenge they face is how to manage their income (investments) so that it lasts as long as they need it. As you approach retirement, you may you may anticipate a similar challenge for yourself.
Part of the answer will lie in coordinating your income with what you will be spending. Another consideration in calculating the percentage of your investment accounts you can take as income each year for the next 25 or more years that you are likely to live in retirement.
You are aiming for income you can count on, year in and year out, to supplement the checks you receive from Social Security and possibly a pension from your former employer. Pensions are being replaced by 401(k)s which puts the pressure on you to make the payments into the pension plan at work. If you are fortunate there will be a company match which will help.
Even if you are lucky enough to have an employer sponsored retirement saving plan, which pays income on a regular basis, you still have to pay special attention to coordination your cash flow.
In part that is true because income from these sources is usually less than what you earned from your employer’s salary when you were employed. You will most likely have to supplement it with interest and dividends from you investments. These payments are usually made semi-annually or quarterly and not monthly. Therefore you will have to pay a little more attention to the distribution rate of you investments. The third source of retirement income, Social Security income, provides on average, about 40 percent of what someone was earning before collecting benefits. Social Security is used to provide a majority of income needs, however, today that is not the case. You have to start saving/investing earlier.
Another situation which arises today is the Sandwich Generation. You may have to deal with other complications. Managing your retirement income can be tougher if you still have children living at home. Are you helping them pay for college tuition, buying a home, or helping them get established in their own business? In addition, do your parents depend on you for some support or you are covering some of their healthcare costs? This may cause you to reduce the amount of money you spend on yourselves if this is the case.
Many people find themselves financially sandwiched in supporting younger and older generations. This could well mean your needing extra income in your earlier retirement years. Later in retirement, you may want to help your grandchildren by contribution to their college or graduate school expenses. This is only possible if you have what you need for yourselves.
None of these are more important than the investment decisions you make to provide sufficient income that will last for as long as you live.
Bottom line is to start today, and pay attention to your investment choices. Seek out a competent Certified Financial Planner. Do it now and you will thank yourself down the road.