How to retire successfully



As the world returns to the office, after 2 years of working from home, more people are contemplating early retirement. But inflation and longer life expectancy may be hampering an expedited path toward this goal. What are some ways to “safely” meet retirement goals so there is no future worry?


A successful retirement simply means that there’s enough income, from sources other than labor, to cover daily expenses until death. Retirement income can come from many different sources and this is called “passive income.” Most notably, these sources of income can include Social Security benefits, investment (retirement account) distributions, stock/bond dividends, pensions, and rental income, among others. Here are some examples to help you with your glide path to a successful retirement.


401(k) and retirement accounts make up the bulk of American assets for the purpose of funding retirement and these are woefully inadequate. “In 2020, the average 401(k) account balance was $129,157, according to Vanguard data.”^1 There’s an annual cap on 401(k) contributions of $27,000 (including $6,500 “catch-up” for people 50+) and even if participants reached these limits, it’s generally not enough to fund retirement on its own. And, since these are investment accounts, there’s the required planning of market volatility and taxes, which can hamper even the most reasonable expectations.


Social Security is the only guaranteed, government-sourced income stream retirees can expect. Those who wait to take it at their full or late retirement age (67 or 70) will reap the benefits of receiving a maximum benefit. This alone however isn’t enough to cover all expenses.


Rental income can be another source of retirement income. Determining if the investment will help with retirement is if it nets a positive cash flow after expenses. With rising interest rates, mortgage costs increase, along with rising costs of keeping up the property; there should be no single dependency on one source of retirement income.


Pension income, like social security, is also guaranteed by the issuer and can also be a great source of supplemental income. Most American companies have replaced pensions with 401ks and have therefore transferred the risk of retirement to the employee. It’s up to each individual to determine if an annuity is something worth considering which would be for the purpose of reducing investment risk and dependency along with reducing the chance of running out of money in retirement.


Royalty income is another form of passive income and is often more about strategy than labor. Publishing books and reaping royalties for life are the goal of every author, but in the age of Youtube and the internet, there are other paths toward generating royalties. Udemy, is an online school, and if you have something to teach, you can share it with the world while charging tuition. There are many ideas to create a passive income stream, and by using the tools that are free and wildly available, all you might need is a good idea.


At Eureka Wealth Management, we believe that there should never be one source of retirement income. Diversifying sources of income reduces investment, longevity, and tax risk. Some of this income should be guaranteed, which would eliminate the worry about running out of money. Call for a free, initial consultation at (760) 537-0791 or book a meeting online at eurekawealthmanagement.com.






Sources


^1 https://www.businessinsider.com/personal-finance/average-401k-balance


https://www.cnbc.com/2022/08/06/this-39-year-old-makes-160000-month-in-passive-income-a-look-at-his-typical-day-i-work-5-hours-a-week.html


https://www.cnbc.com/2022/08/04/this-millennial-earned-97000-last-year-from-two-self-published-books.html