Build Your Dream Retirement

Published March 23rd, 2023
Reading Time: 5 minutes
Veronica Karas

Written by:

Veronica Karas, MBA, CFP®, CFC™
Zoe Network Advisor

Build Your Dream Retirement

Published March 23rd, 2023 
Reading Time: 5 minutes
Veronica Karas

Written by:

Veronica Karas, MBA, CFP®, CFC™
Zoe Network Advisor

Your retirement years should be full of pure enjoyment, creating happy memories, and making the most of your hard work. The last thing you should do is worry about your finances. To turn these dreams into realities, you should anticipate your needs and think about where the money you need will come from. 

What comes to mind when thinking about retirement? Is it an image of you and your partner walking down a beach holding hands? Or laughing and sharing stories with your family? By understanding the inner workings of retirement income, you can enjoy retirement without worrying about finances. 

Transitioning into Retirement

As you start thinking about how to spend your time in retirement, don’t forget that it includes spending money and knowing where it will come from. The starting point is understanding your retirement needs and how you’ll pay for them. 

Anticipate Expenses

Think about all of your potential expenses, such as:

  • Home mortgage & maintenance
  • Property taxes and insurance
  • Car expenses (purchasing new cars throughout time or leasing and ongoing expenses)
  • Utility bills (cable, electricity, water, gas, and heat)
  • Healthcare
  • Food & dining
  • Transportation
  • Travel
  • Charitable contributions & gifts
  • Entertainment
  • Club fees and dues

You may notice a few additional items on your list that should be mentioned here. Expenses can be broken down into two broad categories. Non-discretionary and discretionary. 

Non-discretionary items are the expenses you need. For example, when building a house, these costs include wood, cement, air venting systems, windows, beds, kitchen supplies, etc. Other items could be classified as discretionary or non-essential ones that you might find a way to if you had to eliminate them for some reason. Using the previous analogy, these can be imported rugs, fancy faucets, art, etc. 

Consider Your Lifestyle

Don’t underestimate the costs. Considering your retirement lifestyle plans and associated costs, it’s important to consider inflation. While there isn’t a magic ‘cure’ for inflation, it does pay to consider the impact on your expenses. Inflation-eating away spending power is a real threat.

Establishing Retirement Income Sources

The first step is to set a budget and know how much will go into it. Then, truly understand your expenses and recognize how to pull from different income sources (anticipating inflation).

Not all income is created equal – and different income sources also carry other consequences, especially regarding taxes. For example, the money you will withdraw from a Roth IRA would be tax-free, and some retirees jump in early to use their Roth IRA accounts. However, this is a mistake. A significant upside to having a Roth IRA is the tax-free growth of the assets, so in fact, a Roth IRA should be the last money that someone uses and perhaps doesn’t even use at all since it can be passed onto their heirs for ten more years of tax-free growth under current law!

Social Security

Social Security is a significant source of retirement income, with many Americans relying on their social security income to carry them through and help protect their longevity. Social Security can be claimed as early as age 62, but doing so means taking a significant cut on the social security income you’ll receive for the rest of your life. 

Alternatively, you can elect to delay your benefits to age 70, and you get an 8% increase in your benefits for each year you delay past your full retirement age (FRA). Not only do you get an increased benefit, but you also get the annual cost of living adjustments that social security provides on the increased benefit amount for the rest of your life.

Avoid Dependency

Other sources of income that some people receive include a pension, deferred compensation plan, or the sale of a business. Pensions used to be how almost everyone retired. However, as companies have moved away from pension plans and more towards defined contribution plans, it’s increasingly important for people to focus on their savings rather than relying on a company to provide their retirement income.

Create Three Income Buckets

Make sure every day of this new chapter is a new adventure where you don’t have to worry. Investment income sources are our savings across various accounts and investment vehicles. You can control how you manage these savings, but there are still things you can’t control, so you must devise a strategic plan to liquidate and create the most tax-efficient retirement possible. As a result, you can begin to think about your overall assets in terms of three buckets:

  1. In the liquid bucket, you will have approximately two years’ worth of expenses in readily accessible and liquid vehicles. These can include cash, money market, treasury bills, laddered CDs, and anything else that is highly liquid and accessible with little to no investment risk.
  2. The income bucket is where you will have seven to ten years’ worth of expenses in income-producing, relatively low-risk (as measured by standard deviation) investments- such as municipal bonds, corporate bonds, treasury notes, annuities, rental properties, and the like. The income produced in this bucket should be used to fund the liquidity needs in the liquid bucket.
  3. The growth bucket is where you will have growth-focused assets such as stocks, REITs, MLPs, hedge funds, private equity, businesses, and other similar asset types. These assets, which you expect to grow over time, will help counteract inflation and fund the income bucket as the assets appreciate.

There are going to be investment events that you must also plan for. For example, starting at age 73, you will have Required Minimum Distributions, the minimum required amounts a retiree must draw annually from any tax-deferred accounts they have – such as a traditional IRA or 401(k). In addition, every dollar withdrawn will be subject to income taxes, which could substantially impact the amount of cash needed to cover total expenses. Therefore, adjusting and rebalancing your three buckets as often as necessary and at least twice a year is essential to keep pace with spending changes.

If it sounds like there are many pieces to fit together a solid retirement income puzzle – it’s because there definitely are. Plus, there are so many nuanced rules that vary state by state that it becomes even more critical to work with a qualified fiduciary and financial advisor and ensure you take everything into account!

The Best Part of Building Your Dream Lifestyle Is Enjoying It!

After you stop working, you open the door to a new stage of your life where the last thing you should do is worry. Having a plan for retirement income that accounts for your expected expenses is the best way to ensure you meet your needs and goals. Don’t wait until it’s too late to build the retirement of your dreams. You have everything you need! It’s just a matter of planning for the best years ahead. 

Want to learn more? Watch our workshop featuring Veronica Karas, CFP®, “Secure Your Dream Retirement: Retirement Income,” to get the full conversation and details on retirement income. 

Disclosure: This material provided by Zoe Financial is for informational purposes only.  It is not intended to serve as a substitute for personalized investment advice or as a recommendation or solicitation of any particular security, strategy or investment product. Nothing in these materials is intended to serve as personalized tax and/or investment advice since the availability and effectiveness of any strategy is dependent upon your individual facts and circumstances. Zoe Financial is not an accounting firm- clients and prospective clients should consult with their tax professional regarding their specific tax situation. Opinions expressed by Zoe Financial are based on economic or market conditions at the time this material was written.  Economies and markets fluctuate.  Actual economic or market events may turn out differently than anticipated.  Facts presented have been obtained from sources believed to be reliable.  Zoe Financial, however, cannot guarantee the accuracy or completeness of such information, and certain information presented here may have been condensed or summarized from its original source. 

Ready to Grow
Your Wealth?

Let us connect you with the most qualified wealth planners

Ready to Grow Your Wealth?

Let us connect you with the most qualified wealth planners

Recent Blogs