Note: SDCERS does not provide financial planning advice, but offers these general tips for your retirement planning convenience.
Picture yourself as a retiree: Are you relaxing on a beach somewhere, maybe playing a round of golf? Or are you living retirement check to retirement check, worrying about how you’ll make ends meet? Everyone wants to spend their golden years in comfort. Fortunately, there are things you can do at every stage in life to achieve financial peace of mind in retirement.
Step 1: Post-Retirement Income
First things first, you’ll need to identify what your income sources will be after you leave the workforce and estimate what your post-retirement income will be. You can estimate your future pension benefit by logging in to your SDCERS Member Portal account. See the Member Portal FAQs for detailed instructions explaining how to generate pension benefit estimates using the Retirement Benefit Calculator on your Member Portal account.
Your primary post-retirement income might be your SDCERS pension benefit – but don’t forget about other possible income streams you may have access to, such as social security benefits, military pension, 401(k), IRA, and other savings accounts or annuities. Maybe you even own a rental property that generates a steady source of income. These are all things to consider before moving on to Step 2.
Step 2: Post-Retirement Budget
So you’ve figured out where your money is going to come from, now you have to figure out how much money you’re going to need. A commonly accepted rule of thumb is to plan on needing about 80% of your pre-retirement income if you want to maintain the same quality of life after retirement. For example, if your annual take-home salary is $100,000, you should assume you’ll need at least $80,000 a year after you retire. Of course, this is just an estimate – some of us will need more than 80%, some of us will need less. Either way, taking the time to consider how your expenses will change in retirement will help you create a retirement budget that’s right for you.
Here are some things to consider when deciding how much income you need after retirement:
- Post-Retirement Activities – Do you plan on traveling the world after you retire? Maybe you want to finally learn how to golf? Or maybe you’d rather sit on your front porch every day and read all the books you never got around to before. Whatever your retirement dreams are, think about the price tag that might come with your new hobbies.
- Residency – Where are you going to live? Consider the cost of living and state taxes of wherever you plan on spending the rest of your life.
- Housing – Will you rent or buy? If you think you’ll be renting for the rest of your life, don’t forget to account for future rent increases. If you plan on owning a home, include your mortgage payment, property taxes, HOA fees, and homeowner’s insurance payments in your estimated housing expenses. You might be planning on selling your house and downsizing, in which case don’t forget to include the extra proceeds from the sale as income in your budget!
- Healthcare – It can be hard to predict how much you will have to pay out of pocket for healthcare after retirement. You should first become familiar with your retiree healthcare plan, whatever that may be. Depending on your health concerns, you might want to purchase supplemental health insurance. Don’t forget you may be eligible for Medicare at age 65, but it isn’t free. Consider the deductible and monthly payments associated with your plan. Also, healthcare costs tend to increase with age, so it’s not a bad idea to overestimate your budget in this area.
Once you’ve considered the additional expenses associated with your post-retirement life, add in your regular recurring monthly expenses such as food, toiletries, car payments, insurance, repairs, etc., and don’t be afraid to be overly cautious – it’s always better to end up under budget rather than over. The final number is your income target. Now, you can strategize based on the income sources you identified in Step 1 to ensure you meet that goal. This may include meeting with an SDCERS retirement counselor to figure out when you will be able to retire with a monthly pension benefit that aligns with your post-retirement budget.