Retirement income & expenses

In retirement, your income from Social Security, retirement plans, pensions and personal savings will need to cover your expenses. Understanding and planning how to manage your income sources can help ensure that you will be able to live comfortably.

Balance your income and expenses

Making sure that your retirement income will cover your retirement expenses now and in the future requires careful planning.

Required Minimum Distributions (RMDs)

You are required to begin withdrawing from certain retirement accounts at age 70 1/2. Before taking these distributions, you should understand the amount of your RMD, which accounts require distributions, and the penalties for not taking them.

Income from retirement savings

When it's time to withdraw money from your employer plans and IRAs, understanding the rules can help you make informed choices.

Social Security income

When you begin taking Social Security benefits makes a big difference in how much you'll receive. Learn about your options so you can choose the right time for you.

Evaluate your expenses

Regularly evaluating your expenses can help determine how much income you'll need to support your retirement. It will also show if you need to adjust your spending habits.

Retirement health care costs

Health care costs continue to rise and are a significant expense for most retirees. To help ensure your money lasts throughout retirement, you need a plan for covering these costs.

Gifting opportunities

Giving to a charitable cause, or to your children or loved ones, can be personally fulfilling and may offer valuable tax benefits.

Balance your income and expenses

During retirement you'll live off your savings, so monitoring your income and retirement expenses is more important than ever.

Required Minimum Distributions (RMDs)

Each year starting at age 70 1/2 you are required to withdraw a minimum amount from your retirement savings plans. Understanding how Required Minimum Distributions (RMDs) apply to you now can help you plan ahead.

Income from retirement savings

When it's time to withdraw money from your employer plans and IRAs, understanding the rules can help you make informed choices.

Prepare to collect your pension

If you are enrolled in a pension plan, you'll have various options for that money. Exploring the possibilities now can help you make the right decision for your retirement.

When to begin collecting Social Security

Social Security benefits can supplement your other sources of income in retirement. When you begin taking Social Security has an impact on how much you'll receive each month.

Anticipate retirement health costs

Health care costs continue to rise and are a major expense for most retirees. In order to help ensure your money lasts through retirement, you'll need to anticipate and prepare for them.

Gifting opportunities

Giving to a charitable cause can be personally fulfilling and may offer valuable tax benefits. In addition, you may receive tax advantages by gifting assets to your children or other loved ones.

It's not easy to anticipate what your retirement income needs may be. However, the subject is worth considering, because it can change the way you think about saving during your working years.

Understanding your sources of retirement income

Social Security
While the future of Social Security is undetermined, at this time, most retirees are eligible for Social Security benefits.

Pensions
Perhaps you are fortunate enough to be covered by a traditional pension plan, which will pay out a steady income every month. Even if you anticipate having income from a pension, chances are it will not be enough to cover all your needs in retirement.

Retirement savings
Common retirement saving vehicles include a 401(k) or other employer-based retirement plans and traditional and Roth IRAs.

Other income sources

You can also generate income through annuities, savings accounts, certificates of deposit(CDs), mutual funds, stocks, bonds and other investments. And of course, you can work either part- or full-time during retirement to create yet another source of income.

Projecting your retirement expenses

As you get closer to retirement, you'll need to calculate the income you'll need to live comfortably. For now, you could estimate it will range from 60% to 90% of your pre-retirement income and be generated entirely from savings, Social Security and any other retirement plans you may have. Even if you envision a simple, modest retirement, your savings will have to generate enough income to last throughout your retirement.

Types of expenses
Some retirement expenses are likely to be similar to those you have now. Food and clothing, housing, taxes, utilities, transportation, insurance, personal care, recreation and entertainment will most likely be relatively consistent expenses throughout your life. The amounts you spend on these categories may shift as your life changes, however. For example, you may move to a smaller home, relocate to a different area or take on financial responsibilities for a child, grandchild or parent.

Health care expenses

As you age, your need for health care will most likely increase. While there's no way to plan for exactly what you'll need, it's best to expect health care to be a major part of your retirement costs.

Estimating how long savings can last

Since retirement is still many years away, it may be hard to figure out how long your savings will last. How long you live, market performance, health care costs and inflation will all affect your savings. So will the rate at which you withdraw your money when the time comes. If you take out more than 4-5% of your savings each year of retirement, it's likely that you will outlive your savings — especially if the financial markets suffer an extended downturn.

If you'd like to estimate how long your savings will last, making projections with a retirement planning calculator is the place to start. By plugging in your estimated numbers, you can see how long your money will last in thousands of possible market scenarios. If the calculator shows that your money will run out too soon, you still have time to save and invest more so when retirement comes you'll have more money to live off.

Accounting for inflation

Over time, inflation increases your expenses. For example, at just 3% a year, prices double in about 25 years, and at 4% a year, they double in just 18 years. You retirement may be even further away — and last longer than these periods. To live comfortably, your income will have to increase year over year to maintain the same standard of living.

To protect against rising costs, you have to factor inflation into your assumptions about retirement income and expenses. A financial advisor can show you how to do this, so that your estimates are as realistic as possible.

Although retirement may seem far off, now is the time to plan for success. An Ameriprise financial advisor can help develop a plan for saving and investing that will take advantage of the years ahead, so you're ready when retirement arrives.

Ameriprise Financial and its representatives do not provide tax or legal advice. Consult your tax advisor or attorney regarding specific tax issues.

Ameriprise Financial Services, Inc. Member FINRA and SIPC.