by Nurture Life Financial
One of the biggest changes that comes with retirement is surprisingly simple:
The paycheck stops—but the bills don't.
For decades, most people know approximately when their next paycheck is coming and how much it will be. Retirement changes that. Suddenly, you're responsible for determining where your monthly income will come from and how your financial resources will help support your lifestyle.
That's why one of the most important retirement questions isn't simply how much money you have.
It's:
“How do I create an income strategy that can help replace my paycheck?”
Instead of beginning with account balances, consider beginning with your monthly expenses.
How much does it take to maintain your lifestyle?
Some expenses—housing, utilities, food, insurance, transportation, and healthcare—may need to be paid every month regardless of what happens in the financial markets.
Other expenses, such as travel, entertainment, hobbies, and discretionary purchases, may offer more flexibility.
Understanding how much income you need for essential expenses versus lifestyle expenses can help provide a foundation for building a retirement-income strategy.
During retirement, income can generally come from different types of sources.
Some may provide income that is relatively predictable, such as Social Security or a traditional pension.
Other income may come from assets whose values fluctuate, such as investment portfolios.
And certain financial products, including some types of annuities, may be structured to provide contractual income guarantees, subject to the claims-paying ability of the issuing insurance company and the terms of the contract.
The objective isn't necessarily to choose one source over another.
It's to understand what job you want each source of money to perform.
One way to think about retirement income is to give different portions of your financial resources different responsibilities.
For example, you might think about money intended for:
Essential Income
Resources intended to help cover recurring necessities such as housing, food, utilities, insurance, and healthcare.
Lifestyle Income
Money available for travel, hobbies, entertainment, dining, and other discretionary spending.
Emergency and Opportunity Reserves
Accessible resources for unexpected expenses or opportunities that arise during retirement.
Long-Term and Legacy Assets
Resources that may remain invested for future needs, a surviving spouse, family members, charitable goals, or other legacy objectives.
The appropriate structure will be different for everyone, but thinking about money by purpose rather than simply by account balance can change the retirement-income conversation.
This is where annuities can become part of the discussion.
An annuity is a contract with an insurance company. Depending on the type of annuity and the options selected, it may provide ways to accumulate assets, create income, or both.
Certain annuities can provide guaranteed income for a specified period or for life, subject to the terms of the contract and the financial strength and claims-paying ability of the issuing insurer.
That can make annuities worth exploring for someone concerned about creating a more predictable source of retirement income.
But that doesn't mean an annuity is automatically appropriate for everyone.
Financial products involve trade-offs, and annuities are no exception.
Depending on the type of annuity, considerations may include:
Some annuities may offer greater income guarantees but less liquidity. Others may provide greater access or accumulation potential but work differently when generating income.
The important thing is to understand what you're receiving, what you're giving up, and how the contract fits into your overall strategy.
Creating retirement income doesn't necessarily mean removing all of your money from investments.
Invested assets may continue to play an important role in providing growth potential, flexibility, inflation protection, and resources for future needs.
But withdrawals from investments can be affected by market performance.
That's why some retirement-income strategies may combine different types of resources rather than asking a single account or product to accomplish everything.
The question becomes:
Which money needs predictability, which money needs flexibility, and which money can remain positioned for longer-term growth?
A retirement-income strategy also needs to consider time.
The amount you need at age 65 may not be the amount you need at 75 or 85.
Inflation can increase everyday expenses. Healthcare needs may change. Travel and discretionary spending may decrease or increase. Family circumstances may change.
So creating retirement income isn't simply about generating the largest payment possible on the first day of retirement.
It's about considering how that income strategy may need to support you through different stages of retirement.
For most of your working life, someone else was responsible for putting a paycheck into your account.
Retirement changes that responsibility.
Now your Social Security benefits, pension income if available, insurance products, investments, cash reserves, and other financial resources may need to work together to help create the income that supports your life.
And that's why retirement-income planning isn't simply about having money set aside.
It's about creating a thoughtful plan for where your income will come from, which resources will provide flexibility, and which may help provide greater predictability throughout retirement.
After all, retirement isn't just about having resources. It's about having a plan for how those resources can help provide the income you need, when you need it.
