Coordinating Your Finances
If you don't want to scale back your plans for retirement, you must be able to afford them. That starts with making investments before you retire so that the income is available as you need it. The second and equally important part of the job is managing the income so your financial life runs smoothly.
ALL IN THE TIMING
There's a big difference between a regular source of income - such as a Social Security check that's direct-deposited in your account each month - and income that's less predictable or even unexpected, such as an inheritance. Extra money can come in handy, but you can't depend on it to pay your bills.
But if you've planned ahead, your investments can play an important part in providing additional regular income to offset predictable costs - the ones that are due every month or quarter.
One way to manage your budget to cover large but anticipated expenses, such as a new car or a new roof, is to funnel a portion of each month's total income into a special money market or savings account. You can use the same method to accumulate money for property taxes or insurance bills.
ADDING UP THE INCOME
MANAGING YOUR INCOME
If you have a varied portfolio of investments in place as you approach retirement, you'll make out best if you know how to tap them in the most productive ways. Here are some of the things to consider:
- Learn the difference between investments designed to be depleted, or used up in your lifetime, and those better suited to building an estate
- Create a withdrawal schedule to ensure that your assets last as long as you need them, usually for your estimated lifetime and perhaps your spouse's estimated lifetime as well
- Compare the tax consequences of different types of investments so you get to keep more and pay Uncle Sam less over the years
DEPLETE OR PRESERVE?
Depending on your own needs and objectives, you can consider whether you want to use most of your assets during your lifetime so that your estate will be small, or you want to build an estate.
For example, federal tax law requires you to set up withdrawals from pension plans and traditional IRAs so you're using up those assets during your lifetime. Making regular withdrawals from your nonqualified annuities, also called flexible premium annuities, which are also designed as retirement income programs, works the same way.