Although “retirement income planning” has become a piece of common jargon in the financial industry, it’s not actually a great description of what’s really going on, or what you need.
When people retire, their earned income typically plummets from something they are accustomed to live on, to something closer to zero. So they do need to replace that income in some fashion. For most people, Social Security does at least part of the job. Many people also have a pension from recent or past employment, and many have savings of one kind or another – personal savings, or savings in an employer-sponsored account such as a 401(k) or 403(b) plan.
But replacing income is not, by itself, the whole picture, or anything close to that. If retirement planning is a game (and of course it isn’t, exactly), the object of the game is to avoid running out of money to live on before you die. One way to do that is to successfully replace all or most of the income you made while you were working. But there are other ways, and most of us don’t have the luxury of depending on just one strategy. As in any game, it’s easier to win if you have more than one path to success.
In essence, anything you do, or anything that happens, that affects your financial condition is going to influence whether you run out of money before you die. So yes, income is a big piece of that. But so are expenses, and for many people, one effective strategy is to find ways of reducing expenses without destroying – or preferably by actually enhancing – one’s lifestyle. Assets are equally important. How you invest your money, what you do with your home equity, what you do with assets that make you money and with those that cost you money – all of this can help you win or lose the game. So can what you do about debts – what you owe to others, and what others might owe you. Same with insurance, and with government or employee benefits.
From early on in life, all of us build – and often eventually get tangled in – a financial web that embraces all of these elements. As in any web, everything is connected, and if you disturb one part of it, all the other parts will ultimately feel the effect. So understanding and solidifying your retirement finances requires that you pay attention to a lot different aspects of your life. After all, how many things do you have or do you do that don’t connect with your finances in one way or another?
In the long run, we’ll be looking at all of this. Sometimes we’ll be looking at new developments that are in the news, or maybe happening behind the scenes. Sometimes, as in this introductory post, we’ll be looking at retirement with more of a wide-angle lens.
We have a particular interest in health issues, because health, lack of health, and costs of health care have a big impact – and often a highly unpredictable one, so that careful planning is important. In fact, we’ll delve into that next time, addressing the Affordable Care Act and its impact on Medicare Advantage Plans.
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