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Planning
Home » Retirement » Living on a Retirement Income » PlanningIt is important to think about the order in which you withdraw your retirement income. Withdrawing money from taxable accounts make much more sense than withdrawing from your tax deferred investments during the retirement years. Letting those tax-deferred accounts continue to grow is a logical step. There are several guidelines to follow upon retirement including living within your means, taking care of your health and reallocating money as needed so your money is used in the best way possible.
Budget: There many sources to help you determine a retirement budget. It is important to know how you will manage your retirement income especially if it is 70 percent less than you had while you were working. Planning and maintaining precise records are the first steps in the right direction. When planning your budget, list all income sources such as Social Security, pension benefits, savings, investment income (IRA’s, etc.), trusts and any other income sources. List all expenses and do the math. It is important to have the income to pay your bills, but it is wise to continue saving and investing if possible. Is there too much money spent in one area? Could you live with less? Be in control and remember your money has to last. If you are running short think about turning off cable, changing your phone service, running fewer errands or cut out the gourmet coffee you stop and get everyday. There are numerous ways to decrease your monthly spending.
Lifestyle Choices: Where you live can have a great impact on your retirement. Sometimes people spend more in retirement than they anticipated. There is more time to shop, more leisure time to travel and greater tendency to splurge. If you are worried about money, it may be necessary to make some changes. You might consider purchasing a smaller house, cut your spending and charging. These are just some of the changes that may be necessary to avoid living beyond your means during retirement.
Health: Healthcare expenses can certainly alter your quality of life during retirement. To ensure you have the money for failing health, it is wise to supplement your Medicare coverage. Of course it goes without saying, the first step in maintaining good health is to take care of yourself. Many medical conditions can be altered and avoided with lifestyle changes. Remember to exercise, control your weight and control your stress. Even with a healthy lifestyle, getting sick as you age happens to the best of us. Medicare is a federal government program that assists people 65 years old and older to help them pay for medical bills and drug prescriptions costs. There are several parts to Medicare: Part A, Part B and Part D. Part A is hospital insurance and covers most hospital related costs. Part B is medical insurance and pays some doctor and outpatient medical costs, and Part D covers some prescription drug costs. Notice that the Medicare plans covers SOME of these costs. It is crucial to include in your budge supplemental healthcare insurance to cover the remaining medical expenses.
Supplemental Healthcare: Medigap is an example of one supplemental insurance plan that is available to seniors. This program helps cover medical services that were not covered by Medicare. Cost for this supplement varies from state to state. There are ten different MediGap plans that are available. Supplemental plans are available from private organizations, the military and other insurance providers. By adding a supplemental insurance policy to Medicare, you may avoid spending all of your money on unpaid medical expenses. Supplemental plans also give you the freedom to choose your own doctors, ease the paperwork trail and give you coverage wherever you travel in the United States.
Long-Term Care Insurance: Unfortunately, long-term health care can virtually wipe out your life’s savings. Long-term care insurance (nursing home) is available. This insurance can be costly but it can also provide assurance your money will be protected if you have to live in a nursing home. The average time someone lives in a nursing home is three years. Purchasing insurance to pay for a minimum of three years also ensure your children don’t have to bear the brunt of this expensive scenario. Many policies cover nursing home stays, and help cover adult day care and assisted living facilities.
Social Security: Social Security can provide a base for retirement income but it is unwise to place all of your nest eggs in this one basket. Usually, Social Security provides only 40% of your existing income upon retirement. Hopefully, you have invested other money to supplement this income. Social Security can be withdrawn at a reduced amount at 62. If you wait until your full retirement age (65-67), the full benefit amount will be received. The benefit is higher the longer you wait to collect.
Working during Retirement: Because we are living longer healthier lives, many retirees work during retirement. They work for various reasons including financial and fulfillment. Working full-time is not necessarily the answer. Part-time work is always enticing because it enables the retiree to make extra money while still having time to enjoy life. Working could also enable you to put off drawing Social Security until you are older when you would receive more benefits.
Mortgage Payments: If you have retired, paying off the mortgage could free up money you need for living expenses. Since financial experts suggest 70 percent of your current income upon retirement, eliminating mortgage payment could help you achieve this goal. This is especially helpful if you have a large mortgage. If you are unable to pay off the large loan, moving to a less expensive smaller home is an option. Paying off mortgage payments is not always wise. Using your investments to pay off your loan could run your nest egg short of money. It also bears remembering that your invested money is earning interest. If your interest rate is low and payments are fairly low, your money may earn more in investments. Remember your money needs to last your lifetime.
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