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Making Your Retirement Last

Retirement means something different to just about everyone. You may have plans to travel around the country or even the world.  Maybe you want to retire with a warm climate condo for the winter.  Maybe you just want to live a very quiet life out in the country on a small farm. Whatever your retirement goals may be, you will have a better chance of reaching them if you prepare for the future today.

Planning for retirement income is not just for the wealthy.  In fact, retirement income planning is for everyone. Just like many things in life, the earlier you start, the better off you will be.  Just to illustrate the value of time and power of compounding, take this example. If you invest $100,000 and earn an average of 6 percent per year, it will take you about 12 years to double your money (rule of 72 ... 72/6 = 12) and have a balance of $200,000. If you do not withdraw any money for 24 years, your $10,000 investment will be worth around $400,000 when you begin making withdrawals. This example does not reflect any actual investment, and actual investment values can fluctuate. This example is intended to demonstrate mathematical principles.  Any decline in the market will impact  the Rule of 72 making it become less effective as a tool.

 How much income will you need in retirement?

Your lifestyle will probably be different when you retire compared to when you were working. That does not mean you want to suddenly join the ranks of the poor.  Retirement should be about choices, not about being forced into a lifestyle by a lack of money. If you stay healthy, your monthly expenses will usually go down when you retire. Hopefully, your children are out on their own and you do not have to support them. Your mortgage should be paid off and you might even downsize to a smaller home, also decreasing expenses.  Your healthcare costs can, and probably will, rise as you get older. With good planning for retirement income, you can anticipate your needs and additional expenses you are more than likely to face in the future.

Guaranteeing income for your future

Relying on Social Security alone to take care of your retirement is probably not a solid plan. Many people will not have a pension that can supplement their retirement income like in the past. If you want to make sure you will have enough income throughout your retirement, you must take charge of your own future. Money for retirement can be thought of in two ways. There is the money you are willing to risk and invest for capital appreciation and then there is the money you use to provide income. For many people, annuities fit the second category and provide a way of guaranteeing they will have income when they retire.