How to be confident in your retirement income plan


Key Points

  • Your retirement income will help you cover expenses after you stop working.
  • Taking a close look at three diversified tax categories of assets, when to collect Social Security and your monthly spending can help you have more confidence in your retirement income plan.
  • Your Ameriprise financial advisor can provide you with personalized advice to help you increase your income.

While there are many factors to consider when planning your retirement income, taking a few key actions before you stop working can have positive impacts.

“To increase your retirement income, it can be beneficial — at specific milestones — to take a deeper look at your tax diversification, Social Security options and expenses,” says Marcy Keckler, vice president of Financial Advice Strategy at Ameriprise Financial. “If you begin examining these areas at 10 years, five years and one year from retirement, respectively, you will have time to make adjustments to your savings and investments, so you can be confident in your retirement income.”

 

Once your target retirement date is ten years away, you and your advisor, working with your tax professional, can revisit the diversification of tax categories among your assets to:

  • Fuel your savings: Tax diversification, coupled with a tax-efficient withdrawal strategy, can help you optimize how much you save for financial goals and could help your assets last up to three years longer.1
  • Gain flexibility: You can adapt to life events, both the expected and unexpected, as they occur. For example, to pay for unexpected medical costs you could adjust the timing or amount of withdrawals from your accounts.
  • Take control of your financial picture: By saving into investment vehicles with diverse tax treatments, you can maintain more control over how and when your retirement assets are taxed.

The three tax categories of assets include:

  • Tax-deferred accounts generally grow tax-free until you withdraw money, and you can contribute pre-tax or after-tax dollars. Examples include traditional IRAs2, 401(k) plans2,7, annuities.2
  • Taxable accounts include investments that use after-tax dollars. Any earnings you realize along the way in these accounts are generally subject to tax currently. In some cases, you may pay taxes when you withdraw money from these accounts by selling assets. Examples include mutual funds, brokerage accounts, managed accounts and bank accounts.3
  • Tax-free accounts are investments and insurance that use after-tax dollars for tax-free growth. Examples include Roth IRAs2,4, Roth 401(k) plans2,4, 529 college saving plans5, municipal bonds8and cash value life insurance.6

 

Approximately five years away from your target retirement date, it’s time to decide when you will start collecting Social Security benefits. Your advisor can help you with this as part of an overall cash-flow strategy.

“Social Security is a source of income you can’t outlive, so deciding when to file for it is a critical step in retirement planning,” Keckler says “Although you can start collecting benefits as early as age 62, waiting to collect can pay off. With each year you delay, your overall benefit increases until reaching the maximum amount at age 70.”

It’s a good idea to monitor your monthly expenses for about a year before you stop working. Doing so will provide you with a realistic basis for your monthly outflows.

Keckler recommends running two sets of books — either conceptually or literally with separate credit cards and checking accounts — to quantify two types of expenses:

  • Essential needs that continue in retirement, such as housing, transportation and health care.
  • Lifestyle spending, such as travel, hobbies and restaurants.

After a year, Keckler says “you should have a good idea of how much income you’ll need for necessities, with extra money for leisure and lifestyle expenses.”

Have confidence in your retirement income plan

You spend years saving for retirement. Your Ameriprise financial advisor can help you take the right steps today — before you stop working — to increase your retirement income later. Consult with your financial advisor to factor taxes, Social Security and expenses into your financial picture.