Designing a Retirement Paycheck

One of the most difficult elements of retirement to deal with is the fact that you will no longer be receiving a regular paycheck from your employer.  Many retirees will depend solely on Social Security and company pensions to help make ends meet.  For a number of retirees, however, the money they receive from those two sources simply may not be enough in order to maintain their current standard of living.

The question then becomes, how do you create an income for yourself that ensures a healthy paycheck throughout your retirement?  To provide you with information to help you make your decision, we've outlined some details below, along with a couple of available options.

Flexibility

Some retirees will need to have a great deal of flexibility when it comes to their funds.  For example, you may want to keep up with a hobby or extracurricular activity once you're retired.  Depending on the type of activity and the amount of your involvement in it, you may be looking at a sizable cost, and that cost must be take into consideration.  This is typically more important early on in your retirement, as your energy level and/or desire for such things have a good chance of waning in your later years.

Income Projections

It simply isn't enough to live in the "here and now."  Rather, you need to look forward to the future in order to make sure your present represents how you would like to live in your later years.  First, you'll want to make projections that cover sources of income, such as Social Security, company pensions, annuities, or other such financial sources.  You'll also want to calculate whether or not these income items are adjusted for inflation.  Many of them will be, but you want to make sure, so as to have your calculations be as precise as possible.

Expense Projections

It is a good idea to separate your expenses into categories, and then weigh each of these categories by importance.  First and foremost, you must figure out what your primary living expenses will be, such things as a mortgage or car payment.  In addition, you'll need to decide if it's in your best interest to maintain your mortgage and other large credit accounts as it is, pay it down, or pay it off completely.  Your primary living expenses should also include planning for taxes.  After these primary expenses have been calculated, make room for the more discretionary items.  Basically, you'll be separating your "wants" from your "needs."

Income Annuity

One choice that you may consider in order to create a retirement paycheck is an income annuity.  These work by allowing you to place funds into an account either as a lump sum or periodic installments, and then receive monthly payments based on the funds you've deposited.  An annuity can be a great way to continue receiving an income throughout your retirement.  In some cases, you can receive a lifetime income and have the option for the payments to be adjusted for inflation every year.

Variable Annuity w/ GLWB

Another solid option to choose when designing a retirement paycheck is a variable annuity with a guaranteed lifetime withdrawal benefit.  In recent years, this has become an increasingly popular annuity in the realm of retirement planning.  This type of financial product works by investing its value in a number of other products, such as bonds or equity.  They also provide a death benefit to ensure the protection of your family upon your passing. Be aware, however, that these types of annuities do not adjust for inflation.

Source: http://firstsecurityfinancialshow.com/blog/bid/145897/Designing-a-Retirement-Paycheck

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