The earlier you begin retirement income planning, the better

You’ve likely dreamed of what you’ll do in your retirement, whether that’s traveling, enjoying leisurely days on the golf course, or buying a second home somewhere warm to escape the freezing New Hampshire winters. But have you thought about how you’ll fund this lifestyle? Will you have enough money to retire comfortably and enjoy your dream scenario? It may be an uncomfortable topic, but you must be certain that you’ll be able to generate the income you’ll need during retirement, regardless of market fluctuations that could impact your finances.

In addition to the dream scenarios that you’re hoping for (vacations, a golf membership, a warm weather vacation home), you’ll also need money for the realities of life, like paying for your mortgage, groceries, property taxes, vehicles and other expenses. You’ll also need to have money set aside for any unexpected costs, like medical expenses. Sadly, the bills don’t stop coming in after you retire!

Whether you’re planning to retire in five years or 35, you should start thinking about retirement income planning, and take specific actions, to help position you for a lifetime of financial health and success.

Here are some tips to guide you through this process:

• Know the difference between retirement income planning and retirement planning. Retirement planning is thinking about the things you want to do in retirement, like traveling, golfing and gardening. Retirement income planning considers how you’ll pay the bills when you stop working. It also refers to the strategies you’ll use to turn assets into income.

• Start early. It’s wise to start as early as age 25 or 30 by adding to your savings account and participating in a 401(k). It’s a good idea to review your progress over time. Then, you should start considering retirement income planning five to 10 years before you plan to retire. If you’re not close to meeting your financial goals, you’ll want to take steps to improve your situation. A financial professional can work with you to consider your current financial position and goals, and help you determine actionable steps to get you from where you are to where you want to be.

• Determine how much money is “enough.” The amount you’ll need to fund your retirement depends on numerous factors, including your age — the younger you are, the more money you’ll likely need — your lifestyle and your monthly expenses. Use a cash flow sheet to outline your monthly budget, including mortgage, property taxes, car payments, groceries, etc., then add special expenses like travel and weddings. Also, have an “emergency fund” in place for things like major home repairs, medical expenses and other unexpected situations that may occur. Create a financial “road map,” so if you get off track you can determine how to fix it.

• Have a guaranteed income stream. Whether you have a regular income flow from a pension, Social Security, or something else, you want guaranteed money coming in each month regardless of what happens to the market.

• Build a plan that works no matter what. You need a plan that will work no matter what happens with the market or in your life. If you depend solely on stocks, for instance, and the market plummets as it did in 2020, you may not have the time to wait for the market to fully recover, as you did when you were younger. You also need to plan for unexpected emergencies, such as getting sick and being unable to work prior to your planned retirement.

• Don’t make macro assumptions. Don’t just think, “I have $1 million, I’ll be fine.” Consider inflation and other risks, your regular expenses and anticipated “extra” expenses, like travel or college payments. For example, no one saw the Covid pandemic coming, and that crisis caused major, worldwide financial disruptions that upended many people’s retirement plans and financial stability.

• Protect your money. What if you’re in a car accident and you get sued? If you don’t have the proper umbrella liability insurance, this lawsuit could drain your savings. Be certain that you have proper policies in place to protect your assets.

• Work with an expert that you like and trust. Interview experts, check their references and collect referrals from friends and family. When you select a financial professional, you should have complete confidence in their knowledge, experience and capabilities.

When you’re working, you likely have a million things to do on any given day. We’re all insanely busy with overwhelming schedules and mile-long to-do lists. But it’s truly in your best interest to focus on retirement income planning, even if retirement feels like it’s very far in the future. The sooner you create a plan and start saving, the better off you’ll be in the long run. Carve out some time, meet with a financial professional, develop a plan, and have the peace of mind that you’re protecting your future financial health and your dreams of a wonderful retirement.

Joseph H. Guyton is principal and owner of The Guyton Group, Portsmouth.

Start considering retirement income planning five to 10 years before you plan to retire.