Do you know your important numbers?
Numbers like your total cholesterol, blood pressure, waist size, and blood sugar are all helpful in maintaining your Wealth + Health. But do you know your retirement income gap number?
Your retirement income gap is the difference between your estimated expenses and your expected sources of income in retirement. Failing to know it could leave your retirement income falling short of your retirement dreams, and your actual needs, when it comes time to enjoy your well-deserved golden years.
As average life expectancy increases, knowing your retirement income gap number becomes even more important. And while income needs will likely change at different stages of life, estimating your monthly expenses for years after you stop working is the first step toward creating a strategy that can help create the kind of retirement you’ve always hoped for.
There are a number of economic factors that can affect your budget in retirement. A rise in the age for full Social Security benefits may translate into less than expected income. Plus, lower interest rates can mean reduced returns on some types of investments — not to mention unpredictable changes in tax rates.
Expenses will also likely differ from your current monthly expenses. Items such as commuting costs may decrease while others like travel, recreation, and hobbies may increase. Inflation could also cause your monthly expenses to increase over time.
Even with all these factors, it’s possible to estimate your expenses. Download our retirement budget worksheet to help you determine the retirement income you’ll need. If there’s a gap, talk to your financial professional about how to create a strategy to help address it.
A good place to begin is by creating an account at ssa.gov/myaccount. View your estimated Social Security benefit at 62, at full retirement age, and at age 70. This will give you a good idea of where you stand regarding Social Security income.
Retirement income strategies
If it appears you might have a retirement income gap, and your Social Security and retirement investments aren’t going to be enough to close it, an annuity could be the answer for some. An annuity can help fill your gap by providing guaranteed income for life. They can also help manage tax liability or offer protection for loved ones once you’re no longer around. Other strategies might include mutual funds and other long-term, conservative investments. Talk to your financial professional about the strategy that fits your individual situation best.
Something else to consider in your retirement budgeting exercise: Many people choose to have their Medicare Part B premium deducted from their monthly Social Security payment. In 2018, this amount ranges from $134 to $428.60, depending on your income. You may have to subtract this amount from what you thought you’d be receiving from Social Security.
If you’re fortunate enough to be eligible for a pension, carefully consider your payout options. Compare what the lump-sum payout would do for you versus the monthly “annuity” payment.
Once you’ve estimated your retirement income gap, talk to your financial professional about retirement income options. There are many ways to fill the retirement income gap. They can help you refine your number and get an even more accurate estimate to your projected retirement budget. They can also show you a range of strategies to help you find the one that may work best for you.
Start with a budget. Download our retirement budget worksheet to help determine your retirement income gap.
Things to Consider:
- Estimate your retirement budget using this worksheet.
- Have a financial professional look over your estimated retirement income versus expenses to help refine it.
- Develop a strategy to help cover any retirement income gap.
- If necessary, consider putting more money into your retirement accounts so it has more time in the market versus trying to time the market.
Neither Transamerica nor its agents or representatives may provide tax or legal advice. Anyone to whom this material is promoted, marketed, or recommended should consult with and rely on their own independent tax and legal advisors regarding their particular situation and the concepts presented herein.
Guarantees are based on the claims paying ability of the issuing insurance company.