Fish then advises another step in creating lifetime income in retirement – separating one’s “needs” versus one’s “wants.” This type of retirement income strategy is also called a “Flooring Retirement Income Strategy” or “essential vs discretionary.”Your income for your retirement spending needs should come from a secure income source. While money earmarked for your wants can have more risk associated with it.“We simply figure out the basic needs or the must haves, and calculate how much is needed on a monthly basis,” Fish offers.“We calculate the monthly need and back out what is provided by social security and pension, if applicable. We may utilize a fixed or variable annuity to get to the needed lifetime income, and then use a total return strategy to determine the discretionary expenses, or the want to haves this could be a four to five percent withdrawal off of principal and is looked at annually to determine the proper amount to take off.”“That money is moved to cash, so the money for the next year is there to spend and not subject to market fluctuations”, Fish says. “If we have a bad year in the market, the discretionary expenses can be adjusted.”Of course, it is important to remember that your needs and wants will evolve throughout your retirement. Explore the different phases of retirement and how they impact your spending.Interested in this strategy? Try it out – or any of these ideas — in the Boldin Retirement Planner. This comprehensive planning software package enables you to:
- Create a detailed budget for the rest of your life.
- Differentiate what you want to spend vs. what you need to spend in nearly 100 different categories.
- You can even specify how your spending will change over time.