Creating a replacement income strategy
Where to start
The best place to start is by envisioning the lifestyle you want in retirement. This will include thinking through how you’ll spend your time, where you’ll live, what’s most important to you, and any financial concerns you may have. Prioritize these important topics and talk about them with those closest to you.
Estimate what your expenses will be
Many aim to replace between 70% and 100% of their pre-retirement income but your exact needs will depend on your lifestyle goals and personal situation. To get a better estimate, start with a budget worksheet to get a sense for your essential and discretionary expenses.
Calculate essential living expenses
Include housing and household expenses, food and clothing, healthcare, transportation, insurance, taxes and loans.
Be realistic about discretionary expenses
Think about the things you want to enjoy the most during your retirement. This could include travel, hobbies and clubs, socializing, volunteering, starting a business, or leaving gifts for the next generation.
Account for changes over time
Expenses may increase with inflation or change with age. For instance, you might spend more on travel early on but more on healthcare costs as you age.
Understand your monthly retirement income and make a plan
You may have multiple savings and investment accounts, plus Social Security. Each source of income works differently, so understanding how they fit together is crucial.
If you're unsure about how to combine and use your income sources, creating a detailed income plan with your financial professional will help to identify the right strategy for you. It can help build in flexibility for changes as your vision for retirement evolves.
Here's a look at the basics:
Estimate steady sources
Evaluate other sources of steady income (such as employer-sponsored pensions), along with Social, Security. Think of this as the base of your "income floor" to cover budget essentials.
Cover gaps with income you can't outlive
If your guaranteed income falls short, consider using a portion of your savings to create lifetime income from an annuity to help bridge the gap.
Be smart about withdrawals
A dynamic withdrawal strategy from your investment portfolio can help you adapt to market and help to cover discretionary expenses.
Pay attention to required minimum distributions (RMDs)
The age to begin RMDs is now 73, though it's set to rise to 75 in 2033. If you're taking your first RMD, you have until April 1 of the following year to do so. If you were 72 in 2022 or earlier, you need to continue to take your RMDs. In 2023, the SECURE 2.0 Act reduced the penalty for missed RMDs from 50% to 25%.
Take taxes into account
To maximize tax advantages, consider withdrawing first from taxable investment accounts, allowing earnings in retirement accounts to remain tax deferred or, in the case of Roth IRAs, potentially tax free. It’s a good idea to speak with an independent tax advisor.
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This material is for informational or educational purposes only and is not fiduciary investment advice, or a securities, investment strategy, or insurance product recommendation. This material does not consider an individual’s own objectives or circumstances which should be the basis of any investment decision.
Investment products may be subject to market and other risk factors. See the applicable product literature or visit TIAA.org for details.
Retirement check refers to the annuity income received in retirement. Guarantees of fixed monthly payments are only associated with TIAA's fixed annuities.
Investment decisions should be made based on the investor's own objectives and circumstances. Advice is obtained using an advice methodology from an independent third-party.
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