A Retirement Income Roadmap for Women

by Daryl Dagit
Savant Capital Management

As with all great adventures, retirement is an exciting destination, but requires some navigation to get there successfully.

More women are working and taking charge of their retirement planning than ever before. What does retirement mean to you? Do you dream of traveling, taking on a new hobby, spending time with the grandchildren or starting a business? No matter what your goals are, you need a plan to support the retirement lifestyle you envision.

When will you retire?
Establishing a target age is important, because when you retire determines how long your money will need to last. Make sure you consider the following:

  • The longer you delay retirement, the longer you can build up tax-deferred funds in your IRAs and employer-sponsored plans, like 401(k)s.
  • Accrued benefits in a traditional pension plan, if you have one.
  • Medicare generally doesn't start until you're 65. How will you cover the cost of insurance? Will you be covered under your employer’s plan? If so, what will be your cost?
  • Taking your Social Security retirement benefits early will reduce them. You can claim your benefits at age 62, but you will face a 25- to 30-percent reduction. You can increase your benefits each year you wait to take them past your full retirement age.
  • Working part-time is an option during retirement. Your savings can continue to grow, not to mention… you may be eligible for your employer’s health insurance plan.

How long will your retirement last?
The last thing you want to do is run out of money during retirement. Since there is no way to predict exactly how long you will live, it is best to assume you will live longer than you expect. Take a look at your family tree and see if longevity runs in your family, and remember that women statistically live longer than men. You can also check government statistics, life insurance tables or online life expectancy calculators to help you figure out how long your retirement will last.

Project your retirement expenses
There are several rules of thumb that can help you calculate retirement savings, but I have found that the best way is to do a little bit of work knowing your true budget. You may be able to pay off your mortgage and similar debts before retirement, but you could face other expenses, such as medical insurance, if you retire before you are eligible for Medicare. You need to be honest with yourself in calculating your expenses. Chances are, you will discover that not many of these expenses will change once you retire. For example, you may spend less on gas and clothing, but you will spend more on insurance or medical expenses. If you plan on traveling when you retire, make sure you factor those costs in as well. Finally, keep in mind that inflation will increase your expenses over time.

Identify your sources of income
Ok, now you know how much you need each month to retire. But how do you make it happen? Where will this money come from? If you are lucky enough to have a pension, the solution could be similar to a three-legged stool. In this scenario, your retirement income sources would be the pension, your Social Security benefits and your savings. Take your pension and Social Security, subtract your expenses, and see what amount you end up with. If you will need more than this in retirement, you face what I call the “gap.” This is the amount you will need to close with your savings. If your plan falls short, you do have some options: postpone retirement, work during retirement, try to increase the earnings on your retirement assets, or plan to spend less during retirement.

Transitioning into retirement
When the big day finally happens, your work won’t be finished. You will need to manage your assets very carefully in retirement so they last as long as you need them. Here are some ideas that can help:

  • Review your portfolio regularly. It generally makes sense to become more conservative with your portfolio in retirement, but are you keeping up with inflation? It may make sense to allocate at least a portion of your funds to growth investments.
  • Spend wisely. Be careful not to overspend the first few years, as it might reduce your principal and affect your ability to earn enough returns to carry you through retirement. A good rule of thumb is to not spend more than four to five percent of your portfolio per year.
  • Know your pension plan options. These may range from lump sum, single life, joint life or period certain payout options. If you are married, you should also know what options are available to your spouse and what makes sense for both of you.
  • Determine which assets to use first. This is not as straightforward as it may seem. The rule of thumb is to use the taxable income first, then tax-deferred income, then the income from tax-free accounts. However, this may not be the best way to use your assets since each person’s tax situation is different. You are required to begin taking minimum distributions from your IRA at age 70 ½, but there are times when taking your distributions earlier makes sense from a tax standpoint. Following professional advice may save you in taxes over the long haul.

Unfortunately, there's no one-size-fits-all when it comes to retirement income planning. A financial professional can review your circumstances, help you sort through your options and help develop a plan that's right for you. iBi

Daryl Dagit is a financial advisor with Savant Capital Management. Savant has an office in Peoria at 7535 N. Knoxville Avenue, Suite C.


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