Retirement Q&A

Topic: How Will I Supplement My Income in Retirement?

I’m afraid I’ll never be able to retire. My expenses in retirement will be much higher than my Social Security benefit. How do I bridge the gap without working?

This is a frequent worry for people as they prepare for retirement. It is, however, quite normal for your expenses to outweigh your income in retirement. Thus far, you have been in the “accumulation phase” of life; saving for retirement and hopefully spending less than you were bringing in. In retirement, it is time to switch gears to the “distribution phase.”

What does this mean?

When you retire, it is important to calculate your annual expenses. Then, you must total your income sources and determine the difference between the two.

Guaranteed Annual Income – Annual Expenses = Annual Need in Retirement

Once you determine the additional “income” needed in retirement, you will look to set up a safe distribution from your retirement accounts (IRAs, 401Ks, etc.). This will, in effect, serve as your “paycheck” to fill that gap. A safe distribution rate is one that takes into account the projected growth of your investments and accounts for inflation to ensure that your investments continue to grow over time in spite of the withdrawals that you will make. If you have any questions on this process, you might want to seek the guidance of a Certified Financial Planner TM.