Where will your income come from?

If you're following along with our series on the Seven Steps to a Successful Retirement, welcome to Step Three – an essential part of your retirement plan: figuring out where your income will come from after you stop working.

In our first step, we talked about creating a vision for your retirement. Step Two was all about building a realistic spending plan – how much you’ll want or need to spend each month and year. Today, in Step Three, we look at the income you’ll need to support that lifestyle.

Let’s start with a simple but important exercise: make a list of all the sources of income you expect to receive in retirement. These are your external income sources—money that will be coming in without you having to dip into your savings just yet.

Start with pensions

If you're fortunate enough to have a pension, it’s time to gather the details. Will you take a monthly payment for life, or choose a lump sum that you can roll over into your IRA? Will the pension continue in some form for your spouse if you pass away first? These choices will all impact how much money you’ll receive. For planning purposes, assume the default options: life-only if you're single, and 50% joint-and-survivor if you're married. Put the estimated monthly amount on your income list.

Don’t forget employer benefits

Next, look at any final payments from your current employer – things like deferred compensation, unused vacation, severance, or bonuses. Stock options and restricted stock could also play a role, depending on your circumstances.

Add other income sources

Beyond pensions and employer benefits, you might also receive:

• Rental income

• Royalties

• Alimony or spousal support

• Annuity payments

• Income from a trust

• Potential inheritance

• Proceeds from selling a business or real estate

Even unclaimed property from your state is worth checking!

The big one: Social Security

For most retirees, Social Security will be one of the biggest sources of income. Deciding when to claim benefits is a crucial part of your plan. You can start as early as age 62, but your monthly benefit will be reduced – permanently. Wait until your full retirement age (usually 66 to 67), and you'll get 100% of your benefit. Delay until age 70, and you'll receive an 8% boost for every year you wait past full retirement age.

How much will you receive? You can find out by creating an account at ssa.gov and using their retirement estimator. Don’t forget to factor in spousal and survivor benefits – they can significantly impact your total household income.

Now compare income to spending

Once your income list is complete, compare it with the spending plan you created in Step Two of this series. Most people will find there’s a gap – a difference between what they want to spend and what they expect to receive from external income sources.

Don’t panic. That gap will be filled by the savings and investments you’ve built up – your 401(k), IRAs, Roth IRAs, and other accounts.

Now, divide your annual income gap by your total retirement savings to come up with a percentage. This will give you a rough idea of how sustainable your spending might be:

• 4% or less: You’re likely in good shape.

• 5% to 6%: You’ll need to be careful and strategic.

• Above 6%: It might be worth revisiting your timeline or goals with a qualified retirement planner.

What’s next?

In our next post, we’ll move on to Step Four: building an investment portfolio designed to generate a growing income stream – one that can keep up with your lifestyle for decades to come.

Until then, remember that retirement isn’t just about stopping work – it’s about having the freedom to live your life on your terms. Planning your income now will help make sure that dream becomes a reality.

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Opinions expressed in the attached article are those of the author/speaker and are not necessarily those of Raymond James. All opinions are as of this date and are subject to change without notice. Prior to making an investment decision, please consult with your financial advisor about your individual situation. The foregoing is not a recommendation to buy or sell any individual security or any combination of securities. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material.