Creating retirement income: 4 steps to getting your ‘new’ paycheck
When it’s time to retire, replacing your work paycheck with a retirement income paycheck requires a solid strategy. Creating a plan can help you with budgeting and give you confidence to spend what you’ve worked so hard to save.
Getting started creating a retirement paycheck
What each of us want in retirement is different. You may want to play golf every day. Your spouse wants to visit her sister once a month. And your next-door neighbor wants to volunteer more and take up ballroom dancing lessons.
“That’s why you need a personalized strategy—one that works for you and what you want,” says Jenny Smith, financial advisor at Principal® in Des Moines, Iowa. “That’s a key part to turning years of savings into retirement income.”
Four steps to building your retirement income plan
Step 1: Define your retirement goals.
What do you envision doing during your retirement? How does that change the budget you’ve had during your working years? If you have a spouse or partner, do you plan to retire at the same time or do you have different goals? Lots to think through when you dream about the next phase of your life.
Step 2: Analyze your financial situation.
Review your current asset allocation and how it’s working for you in your investment portfolio and retirement accounts.
Also consider your expected income during retirement. Include both guaranteed income1 (like Social Security2, pensions3, and annuities1) and variable income (like retirement accounts3, a part-time job, and rental income). Make note of debts you’ll have in retirement.
Tip: Your current asset allocation may need to be adjusted once you retire. Switching from saving to spending your savings may mean you still need some growth potential to keep up with inflation. (And so you don’t run out of money.)
Step 3: Evaluate your options and adjust.
If your analysis reveals you may not achieve your retirement goals, decide on some next steps. Here are a few ideas to manage expenses and boost savings.
- Increase your retirement plan contributions.
- Make catch-up contributions to your current IRA or retirement plan if you’re age 50 or older.
- Contribute to a new individual retirement account (IRA) or Roth IRA.
- Adjust your budget to reduce expenses.
- Manage debt so you have more money for long-term savings.
- Work longer, or work part-time in retirement.
Step 4: Choose retirement income solutions.
After you’ve evaluated your current situation and retirement goals, a financial advisor can suggest retirement income solutions that make sense for you.
Your income plan could include:
- savings from your retirement accounts, such as an employer-sponsored 401(k) or 403(b) plan or an IRA,
- options like income annuities, fixed deferred annuities, mutual funds, and bank products (CDs and savings accounts), or
- a combination of both.
About those options. An income annuity provides assurance, predictability, and a guaranteed income stream for life.4 Mutual funds, on the other hand, offer control over how savings are invested and the flexibility to access funds if needed.5 Splitting retirement savings between guaranteed income and investments, for example, you may enjoy the best of both options.5
Tip: Do you need a financial advisor to help you figure out your retirement income plan? We’ll help you find one.
Pay attention to the details.
Smith says when evaluating your choices for retirement income, consider the differences in fees and expenses, as well as tax and legal implications (creditor protections and required minimum distributions), for each option. Also consider your risk tolerance and the length of time before you retire.
Read this article to learn how taxes may affect retirement fund withdrawals and consult a financial advisor or tax professional for help.
“By taking a planned approach to creating a retirement income paycheck, you help reduce your chances of outliving your savings. Because no one wants that, right?” Smith says. “Plus, when you know you can’t outlive it, you’re not afraid to spend your money and enjoy your life more.”
- Find out how much you may need, how to help close a savings gap, and how handling money can change after you retire. Read Avoid outliving your savings in retirement.
- Ready to dive into the details? Read 5 steps to creating your retirement plan.
- Start visualizing retirement based on your own information by using our Retirement Wellness Score. If you have a retirement savings account serviced by Principal®, you can check your Retirement Wellness Score by logging into your account.
1 Guarantees are based upon the claims-paying ability of the issuing insurance company.
2 Based on working years.
3 Other retirement savings.
4 All annuity product guarantees are subject to the claims-paying ability of the issuing insurer.
5 Investing involves risk, including the possible loss of principal.
Asset allocation and diversification do not ensure a profit or protect against a loss.
Increasing your contribution does not guarantee you put yourself in a better spot.
The subject matter in this communication is educational only and provided with the understanding that Principal® is not rendering legal, accounting, investment advice or tax advice. You should consult with appropriate counsel or other advisors on all matters pertaining to legal, tax, investment or accounting obligations and requirements.
Insurance products issued by Principal National Life Insurance Co (except in NY) and Principal Life Insurance Co. Plan administrative services offered by Principal Life. Securities and advisory products offered through Principal Securities, Inc., 800-247-1737, Member SIPC and/or independent broker/dealers. Principal National, Principal Life, and Principal Securities are members of the Principal Financial Group®, Des Moines, IA 50392. Jenny Smith, Principal National and Principal Life Financial Representative, Principal Securities Registered Representative, Financial Advisor.