Eight Retirement-Income Questions Worth Answering Before You Retire

1. What will our retirement lifestyle actually cost?

Before deciding whether you've saved enough, it helps to understand what those savings may eventually need to support.

Start with the life you expect to live.

And the everyday expenses that don't disappear simply because work ends.

You don't need to predict every dollar perfectly.

A useful starting point is simply:

“About how much income would we want available each month to support the retirement we're planning?”

Suppose the answer is approximately:

$7,000 per month.

Now you have something more useful than an account balance.

You have a retirement-paycheck target.

2. How much dependable income will we already have?

Once you know approximately what you need, the next question is where that income may come from.

For many households, Social Security will provide part of the retirement paycheck.

There may also be:

• pensions,
• existing annuity income,
• or other dependable sources.

Suppose your $7,000 monthly target is supported by:

Social Security: $4,000

Other dependable income: $500

That provides:

$4,500 per month

before considering individual taxes, premiums or other deductions.

Now the retirement-income picture becomes clearer.

Instead of asking your savings to somehow “fund retirement,” you can begin defining a more specific job for them.

3. What income gap will our savings need to help fill?

Using our simplified example:

Retirement-income target: $7,000/month

minus

Dependable income: $4,500/month

leaves approximately:

$2,500/month

that needs to come from somewhere else.

That's the income gap.

Retirement savings may need to help fill some or all of it.

This is one reason retirement savings and retirement income aren't the same thing.

An account balance tells you what you've accumulated.

The income gap begins telling you what those accumulated resources may need to do.

A $500,000 account doesn't have the same job when it needs to provide $500 per month as it does when it needs to provide $4,000 per month.

The balance matters.

But so does the demand being placed on it.

4. How long might our retirement income need to last?

No one knows exactly how long they'll live.

That's what makes this question difficult—and important.

Retirement could last 10 years.

It could last 20.

It could last 30 or more.

And for couples, the planning horizon isn't necessarily based on the first spouse.

The household may need resources to continue supporting the spouse who lives longer.

That means retirement-income planning has to consider more than:

“Can we afford to retire this year?”

It should also ask:

“How would this income picture hold up if retirement lasts much longer than we expect?”

Longevity changes the job your savings have to perform.

The longer retirement lasts, the longer expenses need to be funded and the more time inflation, healthcare costs and changing household circumstances have to affect the plan.

5. What happens to our paycheck when markets are down?

Market declines aren't new.

Most people approaching retirement have already experienced them.

What changes in retirement is your relationship with the money.

While you're working, your paycheck may allow you to leave retirement accounts alone during difficult markets.

Once those accounts begin helping fund your lifestyle, withdrawals may need to continue even when account values have fallen.

So instead of asking only:

“How much investment risk are we comfortable with?”

add another question:

“How much of our regular retirement paycheck depends on taking money from accounts whose values can fluctuate?”

Those aren't quite the same question.

A market decline can feel very different when you're watching an account balance than when you're also depending on that account to help pay this month's expenses.

6. What could make our income needs increase?

Your first retirement paycheck doesn't necessarily tell you what you'll need 10, 20 or 30 years later.

Some expenses may decline.

Others may increase.

Healthcare needs can change.

Insurance costs can change.

Home maintenance doesn't stop.

And inflation can gradually reduce what a fixed amount of income can buy.

Imagine receiving $5,000 per month today.

Now imagine receiving exactly the same $5,000 decades from now while many of the things you buy have become more expensive.

The income amount hasn't changed.

Its purchasing power has.

You don't need to predict future inflation perfectly.

A more practical question is:

“Which parts of our retirement-income picture have room to adjust if our expenses change?”

7. How much of our retirement income will actually be available to spend?

Gross retirement income and spendable retirement income aren't always the same.

Taxes may apply.

Healthcare-related premiums may need to be paid.

Other recurring deductions or obligations may reduce what reaches your household.

Different income sources can also receive different tax treatment depending on individual circumstances.

That means a household expecting:

$7,000 of gross monthly retirement income

doesn't automatically have:

$7,000 available for its lifestyle.

This doesn't mean you need to calculate decades of future tax returns.

It means you should know which number you're using.

Ask:

“Are we planning around the income coming in—or the income we'll actually have available to spend?”

Questions involving individual tax consequences should be evaluated with an appropriate tax professional.

8. Would the plan still work if only one of us remained?

For couples, retirement-income planning shouldn't consider only the years you'll spend together.

It should also consider the financial picture after the loss of a spouse.

Household income can change.

Social Security benefits can change depending on applicable survivor-benefit rules.

Pension income may change depending on the option selected.

Other income sources may change as well.

But household expenses don't necessarily fall at the same rate.

The surviving spouse may still have housing costs.

Utilities.

Insurance.

Transportation.

Healthcare.

Property-related expenses.

And everyday living costs.

So one of the most important questions a couple can ask is:

“If one of us had to live this retirement alone, would the income and resources still support the person who remains?”

That's not a pleasant scenario to dwell on.

But considering it can make a retirement-income plan more complete.

The questions work together

These eight questions aren't separate planning exercises.

They're connected.

Your lifestyle determines the income you need.

Dependable income helps determine the gap.

The size of the gap affects how hard your savings may need to work.

Longevity affects how long they may need to do that job.

Market conditions can affect withdrawals.

Inflation and healthcare can change future expenses.

Taxes and deductions can affect what you actually have available to spend.

And the loss of a spouse can change both household income and expenses.

That's why retirement income can be difficult to understand when each topic is considered in isolation.

The bigger picture becomes clearer when you connect them.

You don't need eight perfect answers

If you read through these questions and realize you don't know several of the answers, that's normal.

The purpose isn't to produce eight perfect numbers.

It's to identify what you know, what you don't know and what deserves more attention.

You might discover that Social Security will cover more of your expenses than you expected.

You might realize healthcare isn't adequately represented in your budget.

You may find that your income gap is smaller—or larger—than you assumed.

Or you may simply recognize that you've spent years thinking about how much you've saved without yet deciding how those savings will become income.

Any of those discoveries can be useful.

Clarity usually begins with knowing which questions to ask.