What’s going to happen when your paycheck stops? It’s one of the biggest questions that people nearing retirement have. It’s difficult for people to imagine what life will be like when they start to withdraw money from their hard-earned savings. For many, the feeling of anxiety often comes from trying to determine whether they have enough to cover essential living costs that will continue in retirement.
Many people would consider these the basics of day-to-day living. They include:
These are the primary necessities of life, no matter what stage you are in. We assume during our working years that our paycheck will cover these costs. But in retirement, you need to create your own paycheck. At the very least, it needs to be sufficient to pay for these basic living expenses. Any additional funds can be used for other goals you have in retirement, such as travel, hobbies or vacations.
Social Security is just the start
An effective strategy to deal with essential expense is to find guaranteed or stable income sources to help cover these costs. For most people, the core source of continuous monthly income in retirement is Social Security. While it is an important component, it’s unlikely that Social Security can cover the full extent of essential costs in retirement.
Beyond Social Security, retirees can consider several solutions:
It’s critical to have a plan
Essential expenses are a reality that will continue throughout your retirement. Because of this, you want to make sure your money will last. Investments that can provide a guaranteed or stable stream of income may be part of the solution to cover this portion of your retirement budget.
You can start by determining how much of your essential expenses can be covered by Social Security or pension payouts. Then calculate how much money to place in other investments to generate sufficient income to fill in the gap. Keep in mind that living costs will rise during your retirement, so be sure to account for this as you structure your lifetime income strategy. Any money leftover can be dedicated to “discretionary” expenses – pursuing your other goals and dreams in retirement. To make sure you have everything figured out, you may want to work with a financial advisor who can help you determine a budget and a retirement income plan that fits your needs and desires for retirement.
