Most people think they will spend 20% less in retirement than they do currently. Pre-retirees more often than not underestimate the amount of income they will need in retirement. These pre-retirees estimate retirement income by combining today’s expenses and tomorrow’s dreams usually find themselves facing a shortfall.
A better approach is to put today’s income front and center; not expenses.
- First calculate 70-80% of your current income this is the foundation for retirement spending.
- Deduct all guaranteed sources of income; Social Security, annuities, or pension income.
What remains is the consumption gap.
This hard look at income minus guaranteed income sources identifies a practical, specific dollar amount needed for retirement income that the planning process must address.
Retirees seek the comfort of knowing their income will support their lifestyle choices. Many times individuals will adjust their lifestyle, but these changes should be by choice, not by lack of money or fear of the future.
The feeling of financial security regardless of market or economic conditions is among retirees’ top priorities. Thoughtful income strategies can fend off some threats to a comfortable retirement, including the risk of inflation. Retirement income planning with the help of a financial professional versed in income strategies can help individuals understand and achieve a comfortable retirement.