Planning for the future

Many people have not thought much about how to replace their employer paycheck in retirement. Some close to retiring are unnerved by the prospect of not having a steady stream of income.

The ING Retirement Research Institute released a 2011 study called “Shedding Light on Retirement.”

The study uncovered that 85 percent of people say they need help understanding their potential sources of income in retirement. The truth is, most retirees will need to create their own income stream.

There are various sources of potential retirement income – Social Security, pensions, taxable investments, annuities, bank certificate of deposits (CDs), IRAs, employer plans and more.

It’s also important to consider whether you’re going to continue working during retirement. One or a combination of these sources will ultimately provide your long-term retirement income, so you may need to manage multiple income sources.

A key step for retirees is figuring out how much they can safely take out over time and still avoid running out of money. Retirees today generally live longer than their parents did, so they may be at greater risk of outliving their savings. To address this “longevity risk,” consider how you plan to convert your nest egg into a reliable income source.

Timing is important when it comes to deciding which income source to tap when. They each may be taxed differently and have set rules around the timing of withdrawals, so you should factor that into your retirement plan.

For example, Traditional Individual Retirement Accounts (IRAs) allow retirees to tap funds at 59 cents without the 10 percent IRS early withdrawal penalty tax, but you are also required to take distributions at age 70.

Health care expenses can also dramatically impact retirement income. Retirees become eligible for Medicare at age 65.

If one spouse is two years younger than the other, they may face a two-year gap in medical coverage for the younger spouse.

How do you make your savings last? As a rule, the longer the retirement planning horizon, the less one should take out of a retirement portfolio.

This is because the money needs to last throughout retirement so you do not want to deplete reserves too early. However, as the planning horizon shortens over the years, larger withdrawals could be taken from the portfolio.

Systematic withdrawals can help bring discipline to a retirement income plan. An example is automatically tapping different income sources to make regular deposits into your checking account.

To start to understand what goes into planning for retirement income, use an online source, such as ING Financial Partners, at

Self-help tools can help you think about your personal scenario and help prepare you for a more comprehensive discussion with a financial advisor, who can play a valuable role in helping create a retirement plan.