Are You Retirement Ready? Know Your Numbers!

by Drew Snider, CFP®

Director, Financial Planning, Coastal Credit Union, Financial Advisor, CUSO Financial Services, L.P.


When you think of retirement, often your first question is about a number – how much do I need to save? But retirement is also about how you want to spend your free time without work dictating your schedule. Do you plan to travel extensively, move to be closer family and grandchildren or simply enjoy your garden and long-time friends? Whatever your retirement vision looks like, the numbers need to make the vision become reality. So, get out your calculator and sharpen your pencil because today we are going to discuss your retirement math.

Split Your Budget

When you create your retirement budget, think of your expenses in three different categories. 

  • First are your core expenses, those things that you truly can’t live comfortably without like housing, energy, a reliable car, insurance and of course food. You will want to be sure most of your core expenses are covered by guaranteed income sources.
  • The second category is discretionary spending that you deem necessary for a successful retirement. This could include subscriptions, gym membership, dues for social clubs that enrich your life, etc. Only you can decide what fits here.
  • The third expense category is purely discretionary spending on travel, entertainment, gifts, or charitable donations.

The two discretionary spending categories can be funded using distributions from your investments like IRAs and 401(k)s.

Mind the Gap

Most of us will total up our core expenses and find that our guaranteed income from Social Security and pensions (the two most common) will come up short. That leaves a “core expense gap” that should be filled. You have a few options to fill your core expense gap by taking a portion of your retirement nest egg and turning it into income. 

  • The first is an income annuity where you take a portion of your savings to buy the annuity from an insurance company. In return, the insurance company pays you (and potentially your spouse or other person) a stream of income for your lifetime or joint lifetimes. Typically, the income doesn’t increase and amount you invest is no longer accessible. However, in recent years, insurance companies have designed annuities that have the potential to pay lifetime income and can be pulled back if you choose to. 
  • Another option is to use some retirement savings to buy a rental property that gives you a reliable, but not necessarily guaranteed income stream. Rental income has the potential to increase over time, but you could have periods when the rental is not occupied. 
  • The third option is to invest retirement assets into an investment portfolio specifically designed to generate high dividends and interest for stocks and bonds. Unfortunately, because yields on stock dividends and bond interest rates are historically low, you will need to invest a greater portion of your nest egg to get an equivalent income as an annuity or rental income. Like a rental property, your investment portfolio also has the potential to appreciate.

Once your core expense gap is filled, you can turn your attention to planning for your discretionary expenses. After you identify what your spending goal is for these, consider creating a bucket strategy to place your investment in three risk buckets that you will tap into over time.

The Bucket Strategy

Consider the hypothetical example below that illustrates the bucket strategy for the discretionary spending. Our hypothetical Smith Family has 1 million dollars saved for their retirement (in 401(k)s, IRAs, etc.) and $60,000 of guaranteed income. However, they have core expenses of $72,000 leaving a $12,000 core expense gap. Let’s assume the core expense gap is filled by investing $240,000 in an annuity that generates $12,000 of guaranteed income. With the remaining $760,000, we allocate $72,000 into a short-term bucket and $100,000 in a medium-term bucket. The remainder is invested in the long-term bucket that, if things go as planned, can be invested for 8 or more years allowing for growth and out-pace inflation.

Example Income Plan

Want to be sure you’re retirement ready? As a Coastal member, you can connect with one of our CFS* Financial Advisors to schedule your free retirement plan review. We’ll go beyond the numbers to assess your current retirement income strategies to see if you are on track to being retirement ready.

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*Non-deposit investment products and services are offered through CUSO Financial Services, L.P. ("CFS"), a registered broker-dealer (Member FINRA/SIPC) and SEC Registered Investment Advisor. Products offered through CFS: are not NCUA/NCUSIF or otherwise federally insured, are not guarantees or obligations of the credit union, and may involve investment risk including possible loss of principal. Investment Representatives are registered through CFS. Coastal Credit Union has contracted with CFS to make non-deposit investment products and services available to credit union members.

Trust services available through MEMBERS Trust Company. CFS and Coastal Credit Union are not affiliated with Members Trust Company.