3 Ways to Plan for the Unexpected in Retirement
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The idea of uncertainty in retirement can exciting, but what about when it comes to your income in retirement?
When you give up the nine-to-five, each day can feel unpredictable compared to the last. For what feels like the first time in your life, the trajectory of what you accomplish that day is driven by you and your goals. Retirement means that it’s time to “say goodbye” to long work days, “clock-in” punches, or that dreaded work commute, and “hello” to vacations, time with grandkids, and the freedom to create your own schedule.
Although we can agree that the idea of uncertainty in retirement can be exciting, what about when it comes to your income in retirement? Well, in retirement income planning, the word “unpredictable” garners a new meaning. In fact, it’s been said that when it comes to retirement, the most “boring'' aspect of your plan should be your income. A strong income plan should tell you in layman's terms: where your money is coming from, when you’ll receive it, and how much you’ll receive. No longer are the days where you can work extended hours or look forward to a Christmas bonus to bring home some extra cash; you’re officially on a fixed income.
When your income is fixed, big expenses (fun or not!!) can make your retirement account feel like an ATM. Between all of the fees, fines, and taxes, if you aren’t aware of the potential withdrawal ramifications of the current plan you’re in, it could negatively impact your future cash flow.
So, how do you prepare for big expenses on a fixed income in retirement? We have a few ideas.
Set up an emergency fund.
Sometimes the simplest solution is the one that is most often overlooked. According to a recent survey by Bankrate, fewer than 40% of Americans can pay for a $1,000 expense out of their savings. Unexpected expenses can take a huge hit out of your monthly income; and when that income is fixed during your retirement years, it can be extremely difficult to make up the difference between the money you have and the money you need.
So, how much do you need to set aside in your retirement emergency fund? You can start by tallying your typical monthly expenses such as: housing, property taxes, utilities, medical, debts, necessities, insurance, and so on. Once you have your monthly totals established, think about how big of a financial cushion you’ll need to be stress free, in order to get your final monthly number. Most experts recommend having anywhere from 3-6 months of expenses saved, so multiply your final number by whichever range of time makes the most sense to you.
For example, if your monthly expenses for retirement are $3,200 per month, multiply your ideal number of months times $3,200 to get your ideal emergency fund balance. If you want 6 months of cushion in the bank, you’ll need to work your savings up to $19,200.
Map out your goals.
Is there a dream car you're saving for? Ready to finally remodel that kitchen? How about a family vacation to The Bahamas? No matter how big or small your goals are, they’re an integral part of mapping out your income plan in retirement.
In fact, one of the first conversations Fullerton Financial Planning has with someone who walks through our doors for the first time is centered around exactly that: personal goals. We want to know you, your family, your goals, and your dreams. The more we get to know you, the easier it can be to create a plan that accomplishes your objectives. Confused on how to break your goals down?
Here are a few examples of how to break down your goals, based on different time horizons:
Short-Term Goals (Within 5 years)
Take a vacation
Buy a new car
Build an emergency fund
Medium-Term Goals (5-10 years)
Pay off any debt
Pay for grandchild’s education
Remodel your house
Long-Term Goals (10 or more years away)
Pay off your home
Support aging parents
Move into retirement property
Each type of goal requires a different approach, so we recommend sitting down with your financial advisor to see what investment options make the most sense for you. It’s important to prioritize out all you’d like to achieve, so that your financial plan can be the roadmap that leads you there.
Work with a professional.
If the idea of preparing for retirement (and all the expenses it entails) seems overwhelming, there are plenty of options to help simplify the process. A financial advisor not only can help you articulate your financial goals, but also can set an action plan for the steps required to achieve them.
A financial advisor can help you navigate your retirement plan by working with you to answer questions like:
What does retirement look like for me?
How much do I need to save?
How much income do I need each month?
What time-frame do my investments have?
And so much more...
Mapping out your goals with your advisor provides you with an additional level of accountability, as well as a professional second opinion. The more you track your goals, the more likely you are to succeed (to learn more about goal setting, visit our other blog post about S.M.A.R.T. goals).
You’ve Done the Work, Now Find Your Retirement Guide
At Fullerton Financial Planning, our goal is to help you enjoy your retirement with confidence, not worrying about whether or not you have enough money to enjoy. Sit down with a Fullerton Financial Advisor today to discover if you are on the right track for your retirement goals.
We understand how important your financial future is to you and your family; we also understand how difficult making these plans can be. When you schedule a call with Fullerton Financial Planning, you’ll discover how we can help you manage your finances so you can pursue your goals, be it a room with a view, or a ticket to travel the world.
Don’t leave your financial future to chance. Let us help you create a personalized plan so you can enjoy the retirement you’ve worked so long and hard for.