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June 17, 2013 | retirement

How to Plan for Income During Retirement

“How Much Money Will I Need to Retire?”

While there is no shortage of “rules of thumb” for estimating how much money you’ll need in retirement, it’s much better to work with your Investment Advisor to develop a more accurate calculation. A fulfilling retirement means vastly different things to different people.

Your CFS Advisor at Amplify Wealth Management will work with you to help create a plan that matches your unique vision for retirement. Some of the items you’ll discuss are your current age, at what age you’d like to retire, how much you’ve already saved, projected expenses in retirement, your tolerance for risk, and your retirement goals.

"Will I Have Enough to Last?"

Individuals who retire now can easily spend 20 to 30 years or more in retirement. This fact makes it important to determine if your assets and other sources of income are sufficient to provide income throughout the duration of your life.

IRS regulations require you to take distributions from many types of retirement accounts at age 70 ½ - whether or not you need the money. Failure to do so can result in sizable penalties. Your CFS1 Investment Advisor can help you decide how and when to take distributions from your retirement plans.

Analyzing and Understanding Assets and Expenses

In retirement, most people will draw income from several sources, such as Social Security, pensions, and personal savings and investments. Your Investment Advisor can help you determine how much you have saved and where.

The next step is to determine what your major costs will be in retirement, taking into account that expenses for health care will likely increase as you age. It’s also important to adjust your projected costs for inflation.

Depending on the inflation rates, this may mean your income would need to increase each year to maintain the same standard of living.

Create a Plan for Funding Expenses

Our CFS1 Advisors can assist you with developing a strategy for withdrawing the money you’ll need. Social Security and pensions may provide a fixed amount every month, but you'll still need a plan for using your other assets. The timing of withdrawals can significantly impact the taxes you pay.

Generally speaking, you'll need three elements in your retirement income plan:

  • A cash account for day-to-day expenses
  • Short-term reserves for emergencies and to help generate consistent income
  • Long-term assets for potential growth

Cash Account

A cash account can include checking, savings or money market accounts. Assets in this category are liquid, so you can use them any time without incurring penalties or losses.

Short-term Assets

Short-term assets can provide cash reserves and create consistent and predictable income. Investments in this category generally have guaranteed principal, such as Treasury bills and Certificates of Deposit (CD).

Long-term Assets

The main goal for your long-term assets is to potentially provide growth to help meet your financial needs throughout retirement, and possibly build assets to pass on to your heirs. You may use your long-term assets to create income, transferring them as necessary to short-term reserves or your cash account.

Examples of long-term investments are:

  • Stocks and bonds held individually or in mutual funds
  • Fixed and variable annuities
  • Real estate and real estate investment trusts (REITs)
  • Hedge funds and commodity investments
  • Life insurance cash value

Your CFS1 Advisor can help you determine whether it might be a good strategy to invest some of your assets in bonds or other fixed-income investments as a way to help guard against inflation and market volatility. There are ways to diversify your portfolio that may help you better reach your goals.

Plan for Tax Efficiency

When you retire, taxes can be a major expense. Your CFS1 Advisor can help you create a distribution strategy that will be efficient from a tax perspective.

Everyone’s situation is different, however the general guideline for the order of withdrawals is:

  • Taxable accounts first
  • Tax-deferred accounts next
  • Tax-free accounts last

Your situation and tax bracket may impact the order of withdrawals, so it's best to consult your Advisor. CFS1 and its Registered Representatives do not provide tax advice. For such advice, please consult with a qualified tax professional.

Review and Adjust Your Strategy as Needed

The only constant in life is change. It’s important to have a financial plan, and it’s just as important to remember that circumstances can change which may require you to adjust your investment strategy. You and your CFS1 Advisor will want to monitor your investments and determine whether adjustments need to be made.

Non-deposit investment products and services are offered through CUSO Financial Services, L.P. (“CFS”), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. The Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.