A: What’s going to happen when your paycheck stops? It’s one of the biggest questions that people nearing retirement have. It’s difficult for people to imagine what life will be like when they start to withdraw money from their hard-earned savings. For many, the feeling of anxiety often comes from trying to determine whether they have enough to cover essential living costs that will continue in retirement.
Many people would consider these the basics of day-to-day living. They include:
• Food, shelter and clothing – the staples of survival in life, such as groceries, housing costs and utilities
• Transportation – expenses to maintain vehicles or to use mass transit
• Healthcare – premiums for insurance coverage and out-of-pocket expenses
• Other insurance – on your home, cars, life and even long-term care coverage
• Maintenance – fees you pay for care of your home, vehicles and other possessions
These are the primary necessities of life, no matter what stage you are in. We assume during our working years that our paycheck will cover these costs. But in retirement, you need to create your own paycheck. At the very least, it needs to be sufficient to pay for these basic living expenses. Any additional funds can be used for other goals you have in retirement, such as travel, hobbies or vacations.
Social Security is just the start
An effective strategy to deal with essential expense is to find guaranteed or stable income sources to help cover these costs. For most people, the core source of continuous monthly income in retirement is Social Security. While it is an important component, it’s unlikely that Social Security can cover the full extent of essential costs in retirement.