Strategies For Creating Lifelong Stream Of Income
Monday, August 3, 2015, 6:00 AM | Leave Comment
If you are at retirement age and you quit working, how much could you take from your retirement savings each month to meet your personal and family goals of living comfortably?
You have your monthly social security check, perhaps your pension, annuity, and equity investments if any in the form of dividend income.
Add up all your monthly income and see if you can live on it month-to-month basis without withdrawing from your retirement savings.
Experts say if you do have to withdraw from your retirement account, you should withdraw no more than 4% of your retirement amount the first year and then subsequent years, your withdrawal should be based on inflation.
If you are like most Americans, you should go into a spend-down mode in retirement. Hopefully, you have paid off your mortgage, your cars.
If that’s the case, then you are better off than many folks who are still struggling with mortgage payments in retirement.
There are strategies you can opt for, defined by Jane Bryant Quinn, to create a lifelong stream of income from your retirement account.
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The Total Return Strategy
Hopefully, you have diversified your retirement investments over stocks and bonds. If you have not, do it now. For stocks, invest in equity mutual funds. That will give you diversity by default.
Jane says in a year when stocks are up by 4% or more, take your entire withdrawal from the stock portion of your investment pot. If the market rises by less than 4%, take some money from stocks and some from bonds.
If the market is down for the year, take the entire 4% from the bond portion, to give your stocks time to recover.
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The Income Floor Strategy
Opt for lifelong annuity payments that will give you income for your basic needs from the day you retire. If you have not done so before you retire, then at retirement it might be wise to put part of your money into an immediate monthly payout annuity. Invest the remaining in stocks and bonds. And then follow strategy 1 above for the 4% rule.
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The Bucket Strategy
Set up your 25 years of retirement as buckets.
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Bucket 1 – Year 1 to 5 – Cash, Certificates of Deposit, or annuity paying monthly income.
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Bucket 2 – Year 6 to 10 – Short-term bond fund and some Treasuries.
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Bucket 3 – Year 11 to 15 – Intermediate bonds and bond funds or balanced stock-and-bond mutual funds.
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Bucket 4 – Year 16 to 20 – Same as bucket 3.
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Bucket 5 – Year 21 to 25 – Invest more aggressively in stocks. This is money you won’t need for the first 20 years.
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In a Nutshell
Discuss these strategies with your financial adviser. If ever there were a time to consult a financial planner, this is it – especially when you are wondering if and when you can afford to retire.
