One of the biggest shocks to a new retiree is the sudden absence of a regular paycheck. Your working routine may stop, but your daily expenses will not, and you will need to maintain some kind of income stream to ensure that you can continue your daily life comfortably.
Financial planners and other professionals generally project that a retiree will need to generate from 70 to 90 percent of preretirement income to maintain the same standard of living in retirement.
Some expenses will disappear: commuting expenses, for instance, or wardrobe expenses, or the expense of entertaining at work-related functions. Also, you will no longer be paying out each month toward your retirement plan.
However, especially if you are a young retiree, these savings will likely be offset by a raft of new expenses. You will suddenly be able to engage in a variety of activities that you never had time for when you were working: long vacations to exotic destinations, expensive hobbies, eating out more often. Many people find that they actually spend more when they retire, at least in the early years. This kind of active lifestyle will require careful planning.
Retirement Income Sources
Most Americans will be able to rely on Social Security as one income stream; all qualified applicants can apply as early as age 62 for benefits, or you can delay receiving benefits until age 70. Early benefits will result in smaller monthly checks, while delayed benefits will boost the size of your check; there are various online calculators that will help you determine the best time to start drawing Social Security checks, based on your individual circumstances. However, the maximum monthly benefit is currently (as of 2011) $2,366; while certainly above the poverty level, this income is not enough to sustain an active retirement.
Additionally, you are likely to have some kind of retirement plan through your place of employment. Many workplaces offer traditional “defined benefit” plans — you pay into the plan throughout the course of your working life, and, on retirement, receive a monthly payment that will remain a fixed amount for the rest of your life. But again, the amount is only a percentage of your working income, and if your retirement lasts 30 years or longer, inflation will erode the value of these payments.
More common among workplace-sponsored retirement plans are “defined contribution plans,” the most popular of which is the 401(k). In such a plan, employees elect to make contributions to their own personal retirement funds, and are likewise responsible for investing the money in these funds. Your nest egg will grow (or shrink) depending on market conditions, and on the particular investment vehicles you have chosen to put your money in — usually, you can select from a basket of mutual funds. Moreover, your employer will often match the funds that you yourself contribute. On retirement, the employee can cash out his or her 401(k), or roll it over into an Individual Retirement Account (IRA). The latter option is most advisable if you don’t need the cash right away, especially if you are younger than age 59½; withdrawals made from a 401(k) or regular IRA are not only immediately taxed as ordinary income, but, if made prior to age 59½, elicit a 10 percent early withdrawal penalty.
Eventually, you will need to convert your nest egg, whether from a 401(k), IRA, or other savings, into an income stream. There are a number of ways to do this, and you may wish to consult with a financial advisor to determine the best course for you. You can purchase an immediate annuity, which will provide guaranteed income for life; you can purchase a basket of dividend-paying stocks, which not only will produce income but also provide the prospect of capital growth; you can purchase a portfolio of bonds, which will provide you with income and return your principal at maturity; or you can purchase Treasury Inflation-Protected Securities, or TIPS, which work like regular Treasury bonds, but your principal is adjusted according to the Consumer Price Index (CPI), a common measure of inflation. If you are cash-poor but house-rich, you can even take out a reverse mortgage, tapping your home’s equity to provide an income stream. You might consider some combination of all of these options, to diversify your income streams.
Continue to Generate Income In Retirement
Or: You can continue to work! If you remain actively interested in your preretirement career and can keep up with new developments in your field, hire yourself out as a consultant. You will likely have scores or hundreds of contacts to follow up with, who will be happy for your expertise; plus, you can work your own hours, as much or as little as you want. Or perhaps you want a complete change. If you have actively pursued a hobby throughout your working life, there may be some way to convert your hobby into a small business — dealing model trains, for instance, or raising orchids. Bear in mind that starting up a business involves costs, and many small businesses fail, so be sure you make the time commitment and bear the expense.
Your possibilities for generating income in retirement are limited only by your imagination. Be sure to stay flexible at first — don’t commit your money or your time to any pursuit that you’re not sure about — and your retirement will be just as rewarding as your working life, if not more.
What is a Bond Calculator
If you want to find out the current value of your bonds and how much interest they are paying you, then the fastest way is to use the Bond Calculator. Different people opt for different options to assess and estimate the outcome of their saving bonds investment. Home Loan calculators helps to detail you the exact information related to your saving investment.
Bond Valuation Calculator makes it easy to calculate the market value of a bond. To use our free Bond Valuation Calculator just enter in the bond face value, months until the bonds maturity date, the bond coupon rate percentage, the current market rate percentage (discount rate), and then press the calculate button.