Planning your retirement is a process that should start early for those who are looking to enjoy the years after they stop working. A solid financial plan is key, and good software can help you create the tailored solutions you need to reach your goals.
Personal Financial Retirement Planning Software is an easy software to use and has great benefits. There are many personal financial retirement planning software reviews available on the web, but an individual can easily find out which one is worth considering.
It’s never too early to start planning for retirement. Financial software can help you determine how much money you will need, collect data on the accounts you have, and make projections based on different scenarios. Review the pros and cons of different financial planning software systems, including their ease of use and cost.
Personal Financial Retirement Planning Software & Personal Financial Retirement Planning Software Reviews The financial software industry has grown to include financial retirement planning software that offers a helping hand as you begin planning for your retirement. It is becoming more and more important that people start thinking about their financial future, especially for their retirement years. There are many different types of personal financial retirement planning software on the market these days, each offering slightly different benefits to its users.
Financial Planning Software for Individuals
1. Retirement Income Strategy: Create Buckets
One of the most popular strategies for retirement income planning is to formulate a bucket approach. A bucket approach, also sometimes called a “time segmentation strategy,” establishes different “buckets” or accounts for different spending in different time periods.
Money you need in the short term would be held in cash. Money you need a long time from now could be invested in higher risk, higher return opportunities.
For example,
- Near Term Monetary Needs: Two to five years of income would be in cash or cash equivalents.
- Mid Term Income: Your second bucket might have a more mixed investment allocation in things like bonds and CDs or mutual funds. These types of investments can provide some growth.
- Long Term: Bucket three can be more heavily invested in stocks as the retiree won’t have to touch that bucket for at least 10 years.
“We recommend the “bucket approach,” says Kathleen Fish, founder of Fish and Associates, a financial services firm based in Memphis, Tennessee. “There, we look at all income sources and put our clients’ investments into buckets representing different risk levels.”
Fish continues, “This strategy helps to keep people invested because they can see their required income is set aside and is not impacted by the fluctuations in the stock market.”
2. Separate Needs and Wants
Fish then advises another step in creating lifetime income in retirement – separating one’s “needs” versus one’s “wants.” This type of retirement income strategy is also called a “Flooring Retirement Income Strategy” or “essential vs discretionary.”
Your income for your retirement spending needs should come from a secure income source. While money earmarked for your wants can have more risk associated with it.
“We simply figure out the basic needs or the must-haves, and calculate how much is needed on a monthly basis,” Fish offers.
“We calculate the monthly need and back out what is provided by social security and pension, if applicable. We may utilize a fixed or variable annuity to get to the needed lifetime income, and then use a total return strategy to determine the discretionary expenses, or the want to haves this could be a four to five percent withdrawal off of principal and is looked at annually to determine the proper amount to take off.”
“That money is moved to cash, so the money for the next year is there to spend and not subject to market fluctuations”, Fish says. “If we have a bad year in the market, the discretionary expenses can be adjusted.”
Of course, it is important to remember that your needs and wants will evolve throughout your retirement. Explore the different phases of retirement and how they impact your spending.
Interested in this strategy? Try it out — or any of these ideas — in the NewRetirement Retirement Planner. This detailed planning system enables you to create a detailed budget for the rest of your life. And, you can differentiate what you want to spend vs. what you need to spend in nearly 100 different categories. You can even specify how your spending will change over time.Identify Your Needs with NewRetirement’s Planner
3. Systemic Withdrawals / Fixed Percentage Withdrawals
This is probably the most well-known retirement income strategy. You take your investment portfolio and sell off a fixed withdrawal amount each year to generate retirement income.
While this is a popular strategy, it is falling out of favor — particularly the recommendation to take 4% each year.
According to many investment professionals, withdrawing from your nest egg at a rate of 4% is one way to hopefully ensure that you will still have money at your death…but it’s not a hard and fast rule. Some argue that 4% is too much, some say it’s too little.
And you know what? They’re both right because everyone has different circumstances and therefore, a different scenario and no one can predict what the stock market will do.
The NewRetirement Planner allows you to play around with different fixed percentage withdrawal rates. You can specify any annual fixed percentage and the system models this value and you can see if it is in excess or below all other withdrawals (RMDs, one time expenditures and all other spending needs).
4. Build “Guard Rails”
Paul Ruedi, president of Ruedi Wealth Management, Inc., in Champaign, Illinois, has been running retirement planning simulation models for 20 years. What retirement income strategies does he think work best for retirees? The best withdrawal strategy is a flexible strategy, and one that is built with “guardrails”, he says. “Start out with a balanced portfolio (60/40) with an initial withdrawal rate of around 5 percent,” he explains.
“Then, each year, draw down your portfolio by a figure close to the current inflation rate if you had a positive return for the prior year. Each year, calculate your withdrawal rate (how much you are planning to withdraw by the current balance).”
- “If that figure is more than 20 percent higher than your initial rate (5 percent in this case), then reduce your withdrawal by 10 percent,” Ruedi advises. “For example, if you start at 5 percent, once the withdrawal rate is above 6 percent, reduce spending by 10 percent,” he says.
- “Correspondingly, if your withdrawal rate is 20 percent lower than your initial rate of 5 percent, increase spending from your portfolio by 10 percent,” concludes Ruedi.
“It sounds complicated, but this system is very easy to calculate and understand,” he says. “It will allow you to begin with a higher withdrawal than the 4 percent rule. Better yet, it provides guardrails, which most people have no idea how to create.”
5. Go the Annuity Route to Avoid Unpredictability
Most retirement income plans are unpredictable. You don’t know how long you will live and if the money will last. You don’t know if stocks will go up or down. You can’t be sure if dividends will get cut or if interest rates will go up or down — well, at this point, interest rates can pretty much only go up.
Anyway, if you are concerned about unpredictability, then a lifetime annuity with inflation protection and spousal support might be the way to go.
And, you can now get pretty sophisticated with annuities. “In years past, the alternative to riding out a bumpy stock market while trying to create a steady retirement income was to take the money out of the market and put it into an immediate annuity,” notes Sean Clark, principal with York Independents, in York, Pennsylvania.
Clarke says there is a different method available for middle class investors today, and is a solution that he uses with great frequency. “The solution is an equity indexed annuity with a lifetime income benefit rider,” he explains.
“This account functions similarly to any other type of investment or deposit account, in which the investor retains full control over the investment, but it also provides for an income guaranteed by the annuity company to last at least as long as the client does. This eliminates longevity risk for the client, and creates a level of confidence in their ability to retire which is unavailable in mostly any other investment.”
With the proper education, most investors find this option easy to understand, and “consider it to be a no brainer,” he adds. “Proper use of the index annuity represents the best modern theory of retirement income creation.”
Use an annuity calculator to see how much income you can afford. Or, find out if an annuity is right for you. Better yet, model an annuity as part of your complete retirement plan with the NewRetirement Planner.
6. Assess Risk Tolerance and Needs
To achieve a retirement income plan with certainty without purchasing an annuity, you might want to discuss your needs with a trusted financial advisor.
“Have your financial advisor create a draw down strategy specific for your own particular risk tolerance and needs,” advises Timothy Shanahan, president and chief strategist at Compass Capital Corporation, in Braintree, Massachusetts.
Tailor your retirement income plans to how much risk you can take and how much income you need.
7. Maximize Social Security
If you wait to start Social Security until your maximum retirement age, then you will have a significantly higher monthly retirement income than if you start at age 62.
Delaying the start of your Social Security is simply one of the best ways to boost your lifetime retirement income.
Use a break-even Social Security calculator to help you figure out the optimum time for you to start this benefit.
8. Think Outside the Box
Stocks, bonds, annuities, and real estate are not the only ways to generate retirement income from your savings. Many retirees are getting creative and are investing their money in small businesses that can provide a long-lasting income.
We have heard of people investing their savings in a small inn in the country and others who have bought a taco shack on the beach. There are lots of opportunities that could throw off just enough income to keep you going.
Best of all, the business will keep you active and engaged as you age.
Of course, these types of ventures can be risky and you should know something about running the type of business you invest in. Also think about your plan if your health deteriorates.
9. What About a Lockbox Retirement Income Strategy?
William Sharpe is a Nobel Prize-winning economist and professor of finance, emeritus, at Stanford University’s Graduate School of Business. His Nobel was awarded for developing the Capital Asset Pricing Model (CAPM). He is also well known for the Sharpe Ratio, a number designed to summarize the desirability of an overall investment strategy.
However, much of his later work has focused on retirement income. He has recently created a computer program covering no less than 100,000 retirement income scenarios based on different combinations of life spans and investment returns.
The program is available in a free ebook, Retirement Income Scenario Matrices.
Sharpe’s systems are a bit complex. You can get a simple summary of his ideas here: The Lockbox Strategy and 10 Other Retirement Income Concepts from Nobel Laureate, William Sharpe.
10. The Spend Safely in Retirement Strategy
The Stanford Center on Longevity in collaboration with the Society of Actuaries (SOA) analyzed 292 retirement income strategies and are recommending the “spend safely in retirement strategy” as the best way to spend in retirement.
The spend safely in retirement strategy is designed to help middle-income workers and retirees to decide when to retire, how much to spend in retirement and how to best deploy your financial resources.
The main goal of the strategy is to help you turn your assets — Social Security, the ability to work, savings and home equity — into the most retirement income possible.
11. Anticipate Spending Shifts
You probably won’t be spending exactly the same amount year after year in retirement. As such your retirement income plan should anticipate those spending shifts.
Numerous studies show that, for most retirees, spending goes through three predictable phases:
- When we first retire, we spend a little more than when we were working
- As we continue to age, we generally start to slow down a bit and our spending slows down as well
- In old age, medical expenses can cause spending to spike.
The NewRetirement retirement planning calculator lets you customize different spending levels for different phases of your own retirement. This can help you to tailor your retirement income plan to your actual needs.
12. Go Old School
Financial gurus also say there’s nothing quite like the classics when you’re trying to build up, and preserve, income in retirement.
“The reality is that retirement investing should be treated the same as any other kind of investing: your goal is to achieve the highest return with the least risk of loss,” says Lee Tobey, fund manager at Hedgewise, Inc.
“Prioritizing dividends and interest at the expense of total return doesn’t make sense when you look at the facts,” he says.
Tobey continues, “The best strategy is to prioritize diversification and risk management above all. You want a mix of assets in your portfolio that can weather any economic environment while still generating expected returns of 5 percent or above. If you run an analysis on the last 70 years or so, this mix is:
- 60 percent government bonds
- 30 percent equities
- 5 percent in real estate
- 5 percent in gold.
There is literally no other mix of assets that have performed better on a risk adjusted basis.”
13. Consider Home Equity
Your home is likely your most valuable asset, not your retirement savings.
And, there are actually numerous ways to turn your home equity into retirement income.
- If you get a reverse mortgage, then you can actually take your money in the form of a lifetime annuity or secure a line of credit. So, you get to stay in your home for as long as you live, but the home also provides a reliable income stream. A reverse mortgage isn’t for everyone – check if it’s suitable first.
- You can downsize, cash out some of your home equity and utilize some of the retirement income strategies in this article to create predictable income.
- It might even be possible for you to rent out part of your home and generate income that way.
14. Be Tax Efficient with Withdrawals
Every penny counts when managing money in retirement and that is especially true when it comes to tax savings.
Every retirement account you have may be taxed differently and you will want to be strategic with how and when you take withdrawals from each bucket. A few tips to consider:
- Prioritize withdrawals for your required minimum distributions — mandatory withdrawals that start at age 72.
- Consider a Roth conversion to spread out when and how much you are taxed.
- Be aware of how much you withdraw each year and how the amount impacts your tax bracket.
Taxes are really complicated and what is best for you is different from what is best for anyone else.
Tax efficiency is one compelling reason why you might want to work with a good financial advisor for retirement. You will want to look for someone with experience specific to income taxes as well as someone familiar with retirement drawdown strategies. (Many financial advisors are well versed in helping clients save money but have less experience with managing and drawing it down in retirement.)
And, did you know that the NewRetirement Planner models your future tax liability. You now have the tools to make changes in your plan and see how it impacts this significant expense.
15. Ladder Up
“Laddering” investments is a method of staggering the maturity dates of fixed-income investments. You purchase a series of fixed-income investments, such as certificates of deposit or bonds, with different maturity dates.
Bond ladders are one way of generating retirement income. For example, if you think that your retirement will last 15 years, with adequate funds you could buy 15 individual bonds — the first maturing in one year and the last maturing in 15 years.
This was a strategy used by Bud Hebeler who was able to significantly grow his retirement savings AFTER he retired. Learn more about bond ladders.
16. Use a 1-2 Punch to Make Sure Your Retirement Savings Will Last!
There are multiple ways to make sure your retirement savings last as long as you do. One way is to use a phased approach to utilizing your savings as retirement income.
Peter Tsui is the director of global research and design for S&P Dow Jones Indices. He suggests a method for handling longevity risk — you divide retirement into two phases and fund each phase separately:
Phase 1: The first phase lasts roughly from retirement age until age 85, which according to the Society of Actuaries, is close to the average life expectancy for someone who turns 65 years old in 2015. The actual average life expectancy is 87 — this means that you have at least a 50% chance of living longer than 87 (perhaps MUCH longer) and a 50% chance of living not as long.
Phase 2: The second phase is from 85 through the rest of your life — however long that might be.
To fund the second phase of retirement, Tsui recommends that at retirement you purchase a deferred lifetime annuity with income that will begin at age 85 and last until your death.
- A deferred lifetime annuity is simply an annuity that you buy now for income that will start at a predetermined future date. Lifetime annuities pay income for as long as you live — no matter how long that will be.
- The amount of income you will want to purchase will depend on the difference between any other guaranteed lifetime income sources like Social Security and the cost of your desired lifestyle at that time. However, be sure to also factor in healthcare costs which tend to increase as you get older.
Your remaining savings can be used for the first phase of retirement. Since the time period for using these assets is known, it is much easier to determine how much you can withdraw each year.
17. A Retirement Income Solution: Get a Little Help from the I.R.S.
Some experts argue that perhaps the best rule of thumb for determining a safe retirement withdrawal rate is to actually use the I.R.S.’s Annual Percentage Withdrawal Table to determine optimal retirement withdrawals — for any account (and at any age).
You are probably aware that starting at age 72 you are required to withdraw a certain percentage of your 401k and IRA savings each year in order to avoid hefty tax penalties. The amount you must withdraw is published by the I.R.S. — the Required Minimum Distribution tables. The I.R.S. determines your withdrawal amounts by applying a formula that is based on life expectancy tables. The balance of your account is to be divided by your life expectancy factor (the average number of years someone your age is expected to live).
So, the RMD retirement withdrawal strategy is to apply the I.R.S. RMD formula to any account you want to tap for retirement expenses — at any age after retirement.
For example, if you are married and the younger spouse is 65, then the remaining life expectancy for at least one spouse is 32 years (it’s longer than a single life expectancy since you are projecting the life expectancy of either spouse). If you have account balances totaling $500,000, then the Boston College RMD strategy suggests that you could safely withdraw $15,500 this year. The $15,500 amount is determined by the following calculation: $500,000 divided by 32 — the number of years at least one of you are likely to continue to live — based on the average life expectancy for either spouse.
As you age the percentage rises since you have a lower life expectancy, so at age 90 it’s about 9% of your total portfolio (for a married couple). If you had $500K remaining in your portfolio that would be about $45,000 in that year.
Learn more about the pros and cons of using RMD formulas to determine your retirement income strategy.
18. Retirement Income Strategies and Planning: Get a Real Plan and Keep it Updated
One of the best — and easiest — steps you can take to figure out retirement income is to create a detailed retirement plan. You need to really dig into the details of your own financial situation and see how well that mixes with your hopes for the future.
- Start by assessing what you have
- Figure out exactly what you need and would like to spend
- Look at the details that might sabotage your finances
- Create a retirement income plan tailored to meet the demands you yourself will face in the future
- Maintain, update and tweak your plan over time
You probably have significant retirement income from Social Security. The trick is to calculate out how much more you might be spending every month and figure out a reliable income plan for that difference.
A simple five-question retirement calculator won’t do this for you, but there are some sophisticated tools available online.
The NewRetirement Retirement Planner is widely considered the best online tool. It is highly detailed and easy to use, best of all it saves your information so you can quickly make adjustments as your finances and plans evolve.
And, once you have set up a baseline plan you can try any of the scenarios described above and assess whether or not it’s really a good idea for your future.
Betterment App
Betterment offers to help you set up a retirement plan. After creating an account and sharing some information about yourself, where you live and your finances, you can receive help with saving for retirement, investing toward a set goal and planning for retirement. With the app, you can check your spending, track your net worth and make changes as your lifestyle and needs change.
Charles Schwab Retirement Calculator
Charles Schwab offers a free retirement savings calculator that will tell you if you are saving enough to cover your estimated annual retirement expenses. The calculator collects information from you, including your current age, planned retirement age and investment style. You also enter your current income, the amount saved for retirement and monthly savings. The calculator asks when you plan to start receiving Social Security benefits and how much you plan to spend each year in retirement. The tool then offers a summary of your projected retirement savings, along with the savings needed for retirement. It offers suggestions on what to change, such as your retirement age or annual contributions, to meet your savings needs by the time you retire.
Retire Inspired Quotient (R:IQ) Tool
You’ll be asked to describe your retirement dream with the R:IQ tool, which is free. You’ll also note your current income, how much you expect to need each month during retirement, how many years until you plan to retire and what you’ve saved so far. The R:IQ tool allows you to then assess how much you can expect to have in retirement, based on your current investments. It also shows how much you will need to save to reach your retirement goals. The tool can be used to set savings goals for each month that will enable you to live out your retirement dream.
Fidelity Retirement Score
This free tool can be used to provide a quick assessment of your savings strategy. You answer six questions about your age, income, currently saved amount, monthly savings, expected retirement lifestyle and your investment style. The tool will give you a score based on your responses. You can also see what happens to your score if you change certain factors like your monthly savings, the standard of living in retirement or retirement age.
Personal Capital Retirement Planner
Personal Capital provides a free retirement planner tool. You’ll be asked to enter certain data and link your accounts to the planner so it can analyze your savings and spending habits. It will calculate your chances of having a portfolio that will support your retirement goals. Since your accounts are linked, you can track your progress toward meeting retirement goals over time. The planner also covers variables including taxes, inflation, Social Security and spousal retirement. If you plan to make a big financial purchase in the near future, like buying a home or paying for college, you can see how that would impact your retirement goals. The tool also factors in significant income events, such as a windfall, inheritance or rental income. You can create different scenarios to see how making changes could impact your retirement finances.
Stash Retirement Calculator
With the free retirement calculator at Stash, you can fill in the blanks to note how old you are, when you plan to retire, how much you earn each year before taxes, how much you’ve saved and what you’re currently putting toward retirement every month. Based on this information, the tool shows you how much money you can expect to have in retirement and how much you are likely to need. These two figures are displayed graphically to contrast the amount you’re on track to have with the amount that Stash advises you accumulate based on your entered data. The calculator also includes an analysis of your current savings strategy and resources to learn more about your retirement financial needs.
The Complete Retirement Planner
At $89.99, this planner allows you to create a customized and comprehensive financial plan for both before and after retirement. If you’re married, it allows annual amounts to be entered for each spouse in different categories, including multiple income sources, HSA accounts, traditional 401(k) and IRA contributions, investment return rates and Social Security income. You can use it to evaluate which age you want to start taking distributions from a 401(k) or IRA. There are integrated notes on complex topics like Medicare costs, Social Security benefits and common tax laws. The planner comes with a built-in Social Security calculator and helps estimate health care costs in retirement.
NewRetirement Calculator
If you’re wondering how much you need to retire, NewRetirement helps you estimate your retirement income, when you’ll be able to retire, the amount of savings you need and your overall net worth. With the free retirement calculator, you can also look at “What if?” scenarios to see how a few changes in timing and savings can impact your retirement lifestyle. For instance, you can observe what would happen to your finances if you work part-time for three additional years past your currently planned retirement age and receive 50% of your current salary.
Playing With Fire Retirement Calculator
If you’re thinking of retiring early, this free calculator shows you when you’ll be able to achieve financial independence. You need to enter your age, annual income, annual expenses, current net worth, how your assets are allocated and your expected rate of return on investments. You can then make changes to review how additional savings or other lifestyle changes could allow you to retire even earlier.
Conclusion
If you’re looking for ways to track your savings and financially map out your retirement years, there are many digital options available. Some are free, while others come at a cost or have ongoing subscription fees. Personal financial retirement planning software is a program that helps you organize your personal documents and financial plans, so you can make decisions on how to invest, pay off debt, and save for retirement.
Personal financial retirement planning software can be used to determine the best investment options for your personal retirement account, or IRA. This software may allow you to calculate how much taxes will be paid when money is withdrawn from your account during retirement and how those withdrawals can affect your own personal savings strategy. You may also be able to determine if a Roth IRA or traditional IRA is best for your particular situation through the use of this software.