Personal Finance

Remember that famous line from the movie Jaws: “You’re gonna need a bigger boat”?

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Well, if you and your spouse are planning to float through retirement on your Social Security benefits alone, it might just apply to you.

Social Security is expected to play a major role in providing income for retirees, but unless you’re willing to live a pretty pared-down lifestyle, it shouldn’t be your only resource. According to the Social Security Administration, the average retired worker will receive $1,360 per month in 2017. Benefits typically replace about 40% of a worker’s pre-retirement income.

For some, a pension provides an additional layer of support, but employer pensions have become scarce in the past few decades. That means many retirees will have to fill the income gap from other sources, like their own savings and investments — and the money earned on those investments or through some post-retirement employment.

That makes the careful stewardship of your portfolio critical to your long-term financial security. How thoughtfully you manage those assets may determine how well you live over the next three to four decades.

Which means now, more than ever, pre-retirees and retirees need to acknowledge the importance of getting a detailed, written income plan.

Forget the old “three-legged stool” metaphor for retirement income. A modern-day income plan is more like a jigsaw puzzle, with many pieces that must fit together to provide the lifestyle you want, including savings, Social Security, pensions, real estate, 401(k)s and IRAs.

How big each piece is — or where it fits in your situation — will depend on several things:

• the age at which you plan to retire
• your overall net after-tax income goal
• the size of your overall retirement portfolio
• your tax situation now and in the future
• your legacy goals

It’s important to note that a solid income plan can help you optimize each piece of your puzzle — using investments for liquidity and growth, insurance products for income and principal protection, and alternative investments for diversification, and, of course, by maximizing your Social Security benefits.

Which brings us back to that significant source of retirement income. Social Security may not have enough juice to carry you through retirement on its own, but it is a big factor for most people, and you can receive higher benefits by waiting as long as possible to claim them.

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A worker can choose to retire as early as age 62, but doing so may result in a reduction of as much as 30%. With delayed retirement credits, you can receive your largest benefit by retiring at age 70.

If the rest of your portfolio is pulling its weight, you’ll have a better shot at waiting to claim — and a better chance of staying afloat through retirement.

Here are 5 steps that can help get you started in solving your retirement math problem:

1. Create an inventory of your expenses.
2. Gather a list of your income sources.
3. Compare your estimated essential expenses (“needs”) with your predictable income sources from step 2.
4. Build your plan and allocate assets to accomplish your “needs.”
5. Protect against life’s unknowns and be ready to revise your plan when needed.

Talk to a financial adviser soon about crafting an income plan that can help you navigate the years ahead.

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Kim Franke-Folstad contributed to this article.

Sean P. Lee, MSFS, is the president and founder of Elevated Retirement Group in Murray, Utah. He is an Investment Adviser Representative, held to the fiduciary standard when making investment recommendations, and a licensed life and health insurance professional.

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This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.