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The Paycheck That Lasts a Lifetime

May 23, 2016 3 min read

Key Takeaways

  • Your retirement income needs will vary depending on which phase you’re in.
  • Working part-time could boost income now—and later.
  • Take your meds (please)—and plan to pay for 'em.


Wrapping up a career means saying goodbye to the daily commute and endless meetings. It also means saying goodbye to a paycheck. When you retire, it’s up to you to recreate that income stream for yourself.



The task is complicated for two reasons. First, you need to figure out how much retirement income you need. Financial experts recommend aiming to replace 70% to 80% of your pre-retirement income, but individual situations will vary.

Second, each type of retirement savings account has different tax rules. How much you can spend depends on which accounts you use to receive your retirement income.

Because retirement can last 30 years or more, your income needs will vary depending on which phase you’re in.


The early years: setting the stage

People enjoying good health will often spend the early years of retirement traveling and pursuing their hobbies. It might be a relatively expensive phase of retirement, as a result.

The good news is that you have the most flexibility in this stage. You might even consider part-time employment or starting a home-based business. Doing that could allow you to let your retirement accounts continue to grow.

Working can also help you bridge the gap to a higher Social Security benefit. Your benefit can grow by about 8% every year if you wait until age 70 Opens in new window to start it.


The middle years: getting into the groove

After a decade or longer of retirement, you might prefer a more relaxed lifestyle, with less travel and other activities. At the same time, you may be spending more hours at your doctor’s office.

Medical expenses can put big demands on retirement income. Health care costs are expected to rise close to 6% a year   PDF opens in new window over the next decade, but the cost of living adjustments Opens in new window for Social Security and pensions are far more modest. What’s more, Medicare, the government health insurance program for seniors, does not cover everything.

Some of these higher expenses might be offset by less travel, downsizing and no longer having to support adult children.


The late years: planning your legacy

Your list of medical conditions and bills may be growing, and you might need long-term care. Late retirement could be the most expensive phase of all for that reason. Having long-term care insurance can help ensure that medical costs don’t overwhelm your later years.

An annuity timed to start after age 80 can also give you peace of mind that you won’t outlive your money. By waiting so long to annuitize, the monthly income you receive will be much higher, as payments are spread out over a shorter period of time.

If your goal is leave money for your heirs, hold off on tapping into your retirement account for as long as possible. These accounts can be passed down tax-free, which is not the case for tax-deferred assets.


What you can do next

Examine your benefits plan to see if you’re taking full advantage of what your employer is already offering. For additional help saving money, be sure to look into discount programs, partnerships, and affinity offers.

Once you leave the 9 to 5, you're on the clock when it comes to creating an income stream. Each phase of retirement could dictate how much you'll need, and the order in which you withdraw your money can determine what you can spend. Lay the groundwork now.

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