Life is full of “first” experiences to be cherished, and “first” experiences we may wish we had avoided.
New “first” experiences continue to arise as we age, from wonderful experiences such as the birth of a grandchild to dreaded experiences such as aching joints and adjusting to new physical limits. But we don’t have to touch the stove to learn that it’s hot, we can learn that from others’ experiences too.
Establishing the retirement readiness baseline
Some steps require expertise, but others are basic steps that you may already be taking to manage your money. To test whether you have enough assets to retire, one approach is to take these four steps yourself to create a baseline and framework to transition from your lifelong accumulation mindset into a consumption and distribution pattern:
Identify all the predictable income streams that you expect to have: Social Security, traditional pension, lifetime annuities, rent from real estate, and portfolio income.
Compile an inventory of all financial assets such as: stocks, bonds, mutual funds, certificates of deposit, IRAs, 401(k) accounts and income-producing real property.
Estimate your monthly and annual expenses in retirement: Divide the expenses into the essentials—food, clothing, housing, transportation, insurance and taxes—and the discretionary—travel, entertainment, hobbies, gifts and so on.
Compare income to essential expenses: This will reveal whether there will be an income gap to be filled by touching principal. If you need to invade principal, that likely will affect the associated income stream, so caution is needed.
This baseline may seem simple enough to establish, but remember that expenses during retirement aren’t the same as expenses pre-retirement. Some costs, such as employment-related transportation and clothing, will go down, while others, such as health care, may go up.
Because most of us have always cared for ourselves and haven’t experienced the cost of paying for nursing to stay at home, that cost may be missed and can be quite substantial. Long-Term care insurance may be added in to help mitigate that risk and cost, which would boost the monthly expenses.
By using this baseline, you can get a rough estimate of what your finances will be in retirement given your current resources. It may demonstrate a big deficit right away, suggesting a large adjustment to your spending expectations or delay in the retirement start date. Or you may discover that you have more than expected and needed for a comfortable retirement.
Take a first step toward retirement peace of mind
Prior to taking the retirement leap, it can be beneficial to address more complicated questions about retirement income management. Home Federal Bank’s Trust division can help simplify the process of financial management so you can focus on what’s really important, and your retirement years are what you want them to be. We can help answer questions such as:
- How much can I spend and not run out of money?
- When should I start taking Social Security benefits?
- How do I preserve tax benefits for my retirement savings?
- How can I invest for income and growth, but take on less risk?
- Should I consider a trust, so someone can step in immediately if I become incapacitated?
Whether you are trying to assess whether you’re ready to take the leap or just want to slowly transition into a work-optional lifestyle, addressing your financial strategies may take some of the stress out of that decision.
Home Federal Bank’s Trust division has been providing retirement planning services for clients since 1985, so we can provide guidance on how your retirement goals interact with each other, and what may be needed to balance priorities. Whether your retirement is still far away or you’re retired already, we’re here to provide a second opinion and share our experience so you can focus on the “firsts” that deserve your attention.
Should you decide to have us help manage your financial picture throughout retirement, we can also provide annual reviews, making adjustments as necessary and as your circumstances change.