4 Tips for transitioning to retirement
Your income and expenses will shift in retirement. Here are some ideas to help keep them in balance.
As you approach the end of your career, take stock of what your next act will look like. Consider the following tips:
Calculate your retirement income.
It probably will come from several sources. First, estimate your Social Security benefits. Use the "Estimate your retirement benefits" link at ssa.gov to help determine your payment. Next, calculate any income from pensions, annuities and other sources.
The Retirement Planning Calculator can help you add those numbers to your personal savings to determine an estimate of income you may generate in retirement.
Build a retirement budget.
Making your retirement savings last as long as you need it means being careful with your spending. To that end, estimating your living costs in retirement will help keep your finances on track.
A guideline to help determine how much you may need to maintain your current standard of living is to estimate 85 percent of your pre-retirement income.
For a more precise number, take your current income and subtract the amount you put into savings, FICA taxes and work-related costs, such as commuting. If your house will be paid off by the time you retire, subtract your mortgage payments. Separating your expected expenses into essential (food, medicine, utilities, health care) and discretionary (travel, hobbies) costs will make it easier to create a realistic retirement budget.
Of course, no two retirement budgets are alike. In addition to your everyday expenses, also consider what kind of lifestyle you want during retirement. "The key thing is to really think about what you want your retirement to look like," says Tom Muldoon, an investment analyst with Rockville, Maryland-based Independent Benefit Services.
Make income meet expenses.
You may find there is a gap between your projected income and expenses. In that case, the retirement planning calculator can help estimate how saving more can help you close the gap. Additionally, you can see the effect of adjustments such as postponing retirement for a year or two.
Get help from a professional.