There are a number of questions that need to be answered when you’re planning retirement income.

1) What is your target retirement age?

Determining when to retire is a key factor in planning your retirement income.

While this question may not be easy, it’s important to weigh all of the various factors to give you the chance of the best retirement possible.

Here are some important questions to answer:

• Do you enjoy work or have you had enough?
• How is your health?
• What is your life expectancy?
• Have you saved and invested enough to supplement your Social Security income?
• Do you have debt?
• What are your cash flow needs?
• Do you need to increase the amount of your Social Security checks?
• How will you pay for health insurance?

2) When will you take Social Security?

You shouldn’t decide when to take Social Security without looking at your full retirement picture.

Social Security has a broader impact on IRAs, 401(k)s, Roth IRAs, taxes, spousal benefits, and withdrawal strategies, so failing to take these pieces of your financial puzzle into account when making Social Security decisions is often a huge mistake.

Additional items to consider are your health, work situation, available financial assets, marriage status, and longevity. All of these factors will impact your retirement, which will impact your Social Security.

Consider contacting the Social Security office with questions regarding your benefit or working with a fiduciary comprehensive financial advisor who is familiar with claiming strategies and your entire financial circumstances.

3) If you have a pension, which option should you select?

Pensions are a type of employer-sponsored retirement plan that promise a certain amount of retirement income per month once you retire.

Pensions differ from a 401(k) in many ways. Most importantly, a 401(k) doesn’t guarantee how much you’ll receive per month whereas a pension does.

Pension plan amounts are often tied to the number of years you’ve worked and your final salary.

Here are some common options with pensions:

• Single Life – You’ll receive a certain amount of income per month for life, but payments will cease when you pass away.
• Joint and Survivor – A recipient will receive a certain amount of income per month, then a designated survivor will also receive the full or partial benefit for their life.
• Period Certain – This option allows you to receive a payment for a set number of years. Even if you die before the full period of time, your beneficiaries will continue to receive the annuity.
• Lump Sum – This option allows you to select a one-time cash payment now, in exchange for no further payments.

We suggest discussing these various options and the pros and cons of each with a financial professional as each pension is unique and circumstance is different.

4) How will your income be taxed

When planning your retirement income, it’s essential to take taxes into consideration.

Ultimately, there are three different tax treatments in retirement.

• The first treatment is taxable money, which must be reported on your tax return and is subject to tax. Examples include interest earned in bank accounts and taxable gains on stock in a brokerage account when you sell it. With taxable accounts, you’ll pay either ordinary income tax or capital gain tax rates.
• The second tax treatment is tax-deferred. Your tax-deferred accounts are accounts where you didn’t pay tax on your contribution or seed money. Examples of tax-deferred accounts are 401(k)s and IRAs.
  
  These accounts also grow tax-deferred, so you don’t pay tax as they increase in value. Instead, when you pull money out of these accounts, your withdrawals will be taxed as ordinary income.
• The third tax treatment is tax-free. With a tax-free account, the taxes were paid on the contribution, so growth and withdrawals are not taxed, as long as you comply with IRS regulations. Examples of tax-free accounts are municipal bonds, Roth IRAs, and certain types of cash value insurance.

With a clear income plan that takes taxes into account, it may be possible to proactively decrease your tax bill during retirement. In fact, there are dozens of advanced tax strategies that can be used in retirement to minimize the impact of taxes.

Generally, the higher your net worth, the greater impact retirement tax strategies can have.

However, making intentional retirement income plan decisions around taxes can result in significant tax savings for many Americans, while ignoring tax planning may have painful tax consequences.

5) How will you turn your investments and assets into income?

The way you invest should change as you near retirement. Your investments should also change based on your income plan.

In the accumulation stage of investing, your primary goal is usually to grow your money for future retirement needs. As you approach retirement, the focus shifts.

Many individuals with investment assets of at least $250,000 can divide their portfolios into three different retirement “buckets”.

Each bucket has a different objective and timeline.

The Short-Term Bucket: This bucket holds money you’ll need to turn into income in the next 1-3 years. This is money you’re depending on accessing in the short term. You’ll want to protect this money from market volatility and choose very conservative financial instruments.

The Mid-Term Bucket: This bucket holds money you won’t need to access for 4-6 years. It holds conservative investments that will replenish the short-term bucket when exhausted. While these investments can have more risk than those in the short-term bucket, they are still much more conservative than a growth strategy.

The Long-Term Bucket: This bucket holds money you won’t need for 7 or more years. It can participate more fully in market gains and is designed to replenish the mid-term bucket, as needed. It is often used as a legacy bucket for children, grandchildren, or charitable strategies. In up markets, it can also be used for new cars, vacations, or to create meaningful experiences with children and grandchildren.

Russ Hodgson, the owner and managing principal at Advanced Retirement Strategies has used the bucket strategy with clients in Utah for almost three decades, enough to see it work through the entire retirement cycle.

6) What do you do with your real estate?

Primary Residence

One of the largest assets many Americans own is their home.

For some Americans, a viable strategy is to downsize their home by selling it, and then use a portion of the gains to fund retirement.

Uncle Sam has made this strategy work from a tax perspective. Currently, if you are married, you can exempt up to $500,000 of gains when you sell your home (this exemption is allowed every two years).

This can be a great way to improve your retirement income options.

Rental Properties

If you’ve invested in real estate, your income plan will include any real estate income.

However, as you approach retirement, you have a key retirement decision to make: Do you want to continue to continue to deal with tenants and toilets

If you want to simplify and eliminate the hassle of being a landlord, then liquidating your real estate and investing the gains into investments could be an important part of your planning.

Please see a financial professional about the tax implications of liquidating any real estate.

7) Will you continue to do consulting or work?

Many retirees continue to work or do consulting during retirement, even if assets and income are more than sufficient for living expenses.

Some individuals work primarily to create income. However, for those with significant assets, continued work is usually about giving back and purpose.

Our opinion is that retirement isn’t about being put out of use. It’s about the freedom during retirement that time and money can give you.

No matter why you work, the additional income you create will also be included in your plan as it can lower the amount of assets needed to draw down for cash flow.