Enjoying Life After Retiring From SCE - How Much Income Do You Need?

Retirement is often seen as the ultimate reward for decades of hard work and saving. It offers the opportunity to enjoy life, travel, spend time with family, and focus on hobbies and other passions. However, achieving a comfortable retirement doesn't happen by accident; it requires careful planning and a realistic understanding of how much income you'll need to maintain your desired lifestyle.

As you plan for retirement, knowing the factors influencing your retirement income needs is important! Our team discusses these factors with soon-to-be retirees all the time. While these general guidelines and suggested strategies are a starting point for dialogue, retirement needs are unique to you and your family. Use these guidelines to start the thought process and connect with a financial advisor on our team to help ensure you’re well prepared for your next big chapter. 

Understanding Retirement Income Needs

When determining how much income you'll need in retirement, consider the following factors:

1. Your Retirement Lifestyle

Your desired lifestyle plays a significant role in determining how much income you'll need. Are you planning to travel extensively? Or would you prefer a quiet life at home? Do you want to downsize? Upsize?

2. Healthcare Costs

As we age, healthcare costs tend to increase. You must include health insurance, prescription medications, and potential long-term care costs in your retirement budget.

3. Longevity

Living longer is generally good! But it also means your retirement savings must last. Consider your family's history of longevity and factor it into your income planning.

4. Inflation

Over time, the cost of living tends to increase due to inflation. To maintain your purchasing power, you'll need a retirement income plan that accounts for rising costs.

5. Taxes

Even in retirement, you may still face various taxes on your income. Consider the tax implications of different sources of retirement income, such as Social Security, pensions, and withdrawals from retirement accounts.

Guidelines for Retirement Income

1. Replacement Rate

A common rule of thumb is to aim for a "replacement rate" of 70% to 90% of your pre-retirement income. This range assumes that some costs, such as work-related expenses, may decrease in retirement, while other costs, like healthcare, may increase.

2. The 4% Rule

The "4% Rule" suggests that you can safely withdraw 4% of your retirement savings annually without running out of money over a 30-year retirement period. This rule is a starting point, but it's not a guarantee. Market fluctuations, unexpected expenses, or living longer than expected can affect its reliability. Individuals retiring later may utilize a higher withdrawal rate. 

3. Social Security

Social Security benefits are a critical source of retirement income for many people, but on average, only replace around 37% of past earnings. There isn’t a one-size-fits-all strategy. We can help analyze your situation and determine the best approach for you.

Strategies for a Confident Retirement

1. Diversify Your Sources of Income

Relying solely on one source of income can be risky. Aim to have a mix of income sources, including Social Security, pensions, retirement accounts (like 401(k)s or IRAs), and personal savings.

2. Work Longer if Possible

Working longer can have multiple benefits. It allows you to save more, delay Social Security, and potentially access employer-provided healthcare benefits.

3. Plan for Healthcare Costs

Healthcare can be a significant expense in retirement. Consider enrolling in Medicare at the appropriate age and exploring supplemental insurance or long-term care insurance to cover potential gaps.

4. Schedule a consultation with KWB Wealth!

Planning for retirement is a complex and daunting task.  No matter where you are on your financial journey, we’ll work together to build a plan to get you to your goals. 

Let’s talk!

~ Your team at KWB Wealth

All investing involves risk, including the potential loss of principal, and no strategy can guarantee success. The ideas shared here are meant to help you start thinking about your own retirement income needs and aren’t intended as personalized investment, tax, or legal advice. The “4% rule” and income replacement ranges are general guidelines that may not fit every situation. Social Security and tax rules can change, so it’s always best to talk with a qualified professional about what’s right for you.