Where is your retirement income coming from?

Most people prefer not to think about planning their retirement income until it’s too late. 

Sensible retirement income planning doesn’t have to be complicated; a savings plan with suitable investment strategies started well before retirement can make all the difference in capturing shortfalls in retirement income.

In 2008 a study done by Ernst & Young it suggested three out of five middle class retirees will likely run out of money if they didn’t reduce their current spending by at least 24 per cent but rather maintained their pre-retirement lifestyle. 

WOW! I was shocked when I read that.  

The result of that study is six years old but I can’t imagine the picture being rosier now. 

The first question most people ask when they start thinking about retirement planning is “how much income will I need during retirement?” 

The answer really depends on the type of lifestyle and health insurance you wish to maintain, family obligations, travel plans, whether or not you will still owe a mortgage or other large financial commitments.   

Various easy to use retirement income calculators are available online to work out a rough estimate of the amount of retirement income that matches your needs.  

For the best accuracy though, it is a good idea to work with a qualified retirement planner who can provide you with a comprehensive retirement plan. 

Older generations have depended on retirement income generated from private pension plans, government sponsored programs and funds derived through inheritance. 

These types of income sources are great if they are guaranteed, but inheritance is not and until that “Last Will and Testament” is read and assets have been distributed, a potential beneficiary could be in for a rude awakening.

Here are some common sources for retirement income in today’s market:

• Company pension plan

• Government sponsored programme

• Savings 

• Investment income

• Annuity

• Rental

• Part time employment

Younger generations will need to focus on self-funding their retirement and actively set aside money specifically for retirement use only. 

It might be a surprise to some but most younger generations are acutely aware that they alone are responsible for funding their retirement and do not expect government sponsored programmes or inheritance to be available when their retirement date arrives. 

The best way to determine what your expenses are going to be during retirement is to create two lists i.e. what your expenses are today and which of those expenses are likely to change. 

For example, currently your company covers your health insurance however once you retire you will be responsible for the premium. So we know that expense will increase. 

Another example is that while you are at work all day you use minimal utilities at home but once you retire you will be at home more therefore your utilities costs will increase.  

On the other hand your clothing costs should reduce because you are not spending money on a work wardrobe. 

Some expenses will go up and some will go down.

Once you have figured out the changes, then that would be a good time to enlist the help of a professional. 

Working with a qualified retirement planner to produce a comprehensive retirement plan will give you the projections of what you need to do today in order to cover any shortfall that may occur in the future. 

Retirement planning gives you the tools and techniques to prepare for a happy and worry free retirement. 

Carla Seely is a Senior Wealth Manager at AFL Investments.  She may be reached at 294-5712 or [email protected]