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10 Strategies for Building a Retirement Income

written by: Kristie Lorette•edited by: Donna Cosmato•updated: 8/1/2011

Do you dream of spending days traveling around the world, reading or doing your favorite hobby as you live out your retirement years? Sure, everyone does. In order to live out your retirement the way you want, you have to start planning for it financially now. Learn 10 ways you can proactively plan.

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    Start saving for retirement now so you can live the life you want later. By Cohdra. Most of us work hard to pay our bills, but we also work hard now so that we have the money we need to live out our retirement years in the lifestyle to which we are accustomed. Retirement income, however, does not just happen by accident. It takes some serious consideration and planning on your part to make sure that you are continuously building retirement savings accounts that will build the retirement income you need to live on when the time comes.

    Fortunately, you can take some proactive measures to build the most effective and efficient retirement income for your personal situation.

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    1. Determine How Much Money You Need to Live

    History is a very good indicator of the future. This is true when it comes to estimating the amount of money you will need to live during your retirement years. You need to know approximately how much of a retirement income you need before you take the rest of the steps to build the means to produce the income.

    Financial experts estimate that most retirees need to generate approximately 75 percent of their current income as retirement income. Primarily, the decrease in the necessary income is attributed to numerous factors including no longer having to pay so much for gas for a commute back and forth to work or dry cleaning expenses for professional clothes and downsizing into a smaller home, which also means less expenses. Plus, you no longer have expenses related to raising your children and have hopefully paid off their college expenses.

    Retirement calculators are available to help you estimate how much retirement income you need to generate. These calculations also provide you with information on how much money you need to put into your retirement savings account now and through the years in order to meet your retirement goals in the future.

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    2. Evaluate Strategies for Reaching Income Goals

    Once you have an idea of how much retirement income you need, it is now time to start researching and evaluating the various types of investment tools that can help you achieve your goals. Unfortunately, there is not a one size fits all investment plan or mixture of investments that works for everyone. Most individuals look to some type of financial expert—be it a financial advisor or a tax advisor—to help them put together the retirement savings plans that in total will generate the retirement income they seek.

    Some of the types of accounts you should consider include:

    • Annuities
    • IRAs
    • 401k
    • Mutual funds
    • Stocks
    • Bonds
    • Diversification of several of these types of accounts and investments
    • Real estate

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    3. Create a Plan

    The next step is to use all of this information to put a retirement plan in place. According to a Harvard study, you are 85 percent more likely to achieve your goals if you write them down. Using a professional planner to put the plan together will cost you money, but keep in mind that these professionals have the experience and knowledge to help you put together a professional and comprehensive plan. You can also use software online or programs that you can buy to help you put your own plan together by taking your age, income, debts, retirement age, and so forth into consideration.

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    4. Start Saving Now

    A plan is just a plan unless you implement it. Whether you’re in your 20s or your 50s, it is never too late to start planning to generate a retirement income. Ideally, time is on your side, so the sooner you start saving, the better your financial picture will be in the future.

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    5. Learn Where to Cut Back

    If you’re looking at what your retirement plan says you need to put away every month and your household budget, you may be wondering where you are supposed to come up with the money. Look for areas in your budget where you can cut back or cut out spending completely. Then reallocate that money to go to your retirement savings accounts and investments. Get rid of cable, cut down the minutes or data plan on your cell phone, or make coffee at home instead of hitting the local coffee shop every day. A few dollars here and a few dollars there really add up in the long run.

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    6. Learn About the Tax Benefits

    Some retirement savings accounts offer tax benefits that others do not offer. As your tax bracket changes, reevaluate where your investments are held and what type of retirement accounts you have to make sure that you are maximizing the tax benefits to your advantage.

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    7. Re-evaluate Life Changes

    As your life changes, so do your future retirement income needs. If you get married, have kids, need to start saving for college educations or your spouse dies, these are all situations where you need to re-evaluate your retirement income for the future and how you need to rearrange your current investments and portfolios to meet your new goals.

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    8. Take Retirement on a Test Drive

    Before you buy a car, you test drive it. It may sound quirky or unusual, but you can do the same thing for retirement. At least a few years before you’re planning to retire, live as if you have already retired. Cut back your expenses, or try living on the amount of income you have established as your retirement income. This will allow you to figure out where you need to make tweaks, adjustments or modifications so when it comes time for you to really retire, you are better prepared for living out your golden years.

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    9. Increase Income

    If you are finding it hard to come up with the extra money you need to put away to meet your retirement income goals, think of some other ways that you may be able to increase your income now. You can apply for a higher paying job or go back to school to get a degree to earn more money. You can even take on a part-time second job and allocate all of that money to retirement savings.

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    10. Seriously Consider Your Retirement Date

    Since we are living longer and healthier lives, you should also consider when you choose to retire. If economic hard times or the stock market performance has devalued your retirement accounts, so that it won’t generate the retirement income you need, then you may need to delay retirement. It is better to delay retirement a few years than to run out of money during retirement.

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    Weston Liz, "Money in your 50's: 8 moves to make," MSN. Money,

    Image: economysep.jpg by lisasolonynko under morgueFile Free License