In the process of retirement income management, the key is finding the right balance that suits the retiree. I talk often about how important that individual aspect is to retirement planning. (See link to Series 1, post 3 ‘Who Is the Client, You or Your Money’)

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Ideally, you need to know if you have enough assets and investments to retire happily and safely. Here are the first three steps you and your financial advisor should take:

Step 1: Estimate how long retirement income will be needed. How many years must the assets last? Are you and your spouse healthy? Is there a history of longevity in your family?

Step 2. Identify and manage the numerous risks, such as inflation, longevity and healthcare expenses, just to name a few. then try to reduce the risks, as much as possible,

Step 3. Start to convert resources into income, regularly updating the plan. Converting assets for lifetime income is the fundamental strategy in the retirement income planning process.

To get a ballpark figure, you can use this standard approach to calculating income needs: (1) figure average monthly expenses, (2) add up any lifetime income such Social Security and pension, and (3) subtract the monthly income from the expenses to determine any gap. To see if the gap can be filled, add up all financial assets and multiply by an expected annual rate of return, then divide the result by 12 for a monthly income stream. If it fills the gap, you can retire.

If it doesn’t fill the gap, look at some other approaches. You have various options: Increase your returns where possible; find other lifetime income sources; spend less in retirement; work full or part time; postpone the start of Social Security or pension payments; increase your savings; or tap into your home equity.

Of course, your financial advisor is there to help you determine the best course of action for maintaining your income stream or uncovering ways to increase that income stream for the right retirement plan for you.