My Money Matters | October 2018

Retirement Strategy – Looking at the Whole Picture

When thinking about retirement, Social Security is one of the first things that comes to mind, but Social Security is only one of many potential sources of income for the average retiree. It is helpful to understand the various income sources as a basis for proper retirement planning and to ask yourself some questions when putting together a retirement plan.

  • Are you eligible for a pension or other guaranteed benefits?

    Though not as common as in decades past, for some pensions can be a great way to help fund your lifestyle during retirement.

  • Can you continue to earn income by working part-time?

    Working part-time can help push out drawing income from Social Security and accessing savings.

  • Can you live on sources besides Social Security for your early retirement years?

    For every month you delay collecting after age 62, your benefit grows.

  • Do you have property that can generate income?

    For example, you may want to rent out a vacation home when you're not using it.

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Retiring at the traditional age of 65 means that your retirement plan needs to sustain an acceptable lifestyle for at least two decades or so given current life expectancy, not to mention the likely desire of having an estate to pass down to your children or other family members. After working hard accumulating wealth and preparing for retirement, it is crucial to put a comprehensive plan in place so that hard-earned retirement savings are adequate and not diminished prematurely.

A given individual’s reliance on these various income sources will of course vary. A key consideration in assessing income sources is whether the collection of Social Security benefits can be delayed. As the diagram below illustrates, the longer you can wait before beginning to collect Social Security, the larger the benefit with the difference being material.

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The goal of developing a retirement strategy is to understand all of your potential income sources and how best to allocate them to pay expenses. In addition to delaying the start of Social Security payments, waiting longer to tap into your retirement accounts—401(k), 403(b), IRA, etc.—will also increase the likelihood that your money will last the duration of your retirement as these funds can continue to grow for a time on a tax-deferred basis.

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In the example above, a client has monthly retirement expenses of $5,000. After accounting for pension benefits of $1,000 and social security of $2,000 (assuming retirement at 66 and ignoring taxes for simplicity), the client has a gap of $2,000 that must be filled from personal savings like an IRA account.

It is crucial to understand an income gap that might exist because this is the foundation for establishing a withdrawal rate and therefore an appropriate investment strategy during retirement. Investment positioning during retirement remains critical. Invest too conservatively and risk depleting retirement savings too fast, or maintain excessive risk that may not be necessary.

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So you can see the importance of looking at the whole picture and crafting a comprehensive plan before entering your retirement years. As the saying goes: Hope—“I hope I don’t run out of money”, “I hope I can still afford to travel”—is not a strategy.

At TD&Co. we are ready to help create a retirement plan tailored to your needs and objectives. We can help assess income sources, identify potential areas of need, and set an investment portfolio geared to achieving your goals. Please contact us so that we may begin the journey together.

- Brant Jones, CFP®