Questions to Ask Yourself
When do I want to retire?
How long do I need my money to last?
What challenges could I face?
After years of saving and investing, you now need different strategies to help generate retirement income…
Creating a steady income stream in retirement is a little different than receiving a salary every two weeks. There’s no one major source of cash. It’s a combination of various sources that sustains this stage of your life, including pensions, annuities, Social Security benefits, dividend-paying stocks, interest-yielding bonds and employer-sponsored retirement accounts, just to name a few. A knowledgeable advisor can help you consolidate these disparate streams into a cash flow that makes sense for your desired lifestyle and long-term goals.
Replacing your paycheck
The first step is identifying the sources of income you can count on, then talking with your financial advisor to determine how much of your retirement needs will be covered by those more reliable income sources (for example, the Social Security payments mentioned above). Any assets left over will then be available to pay for your wants.
However, even if you have more than enough saved to take care of your family’s needs, that doesn’t mean you should stuff all your cash into a mattress. It may be smarter to take out only what you need, when you need it, as part of a systemic withdrawal strategy, thus allowing the rest to continue working for you.
Creating a strategy that works for you
Part of that planning is developing a financial and retirement income plan that works for you. You’ll likely need to rely on a combination of savings, fixed income and equity investments to provide a predictable current and future income stream. The fixed income part of your portfolio can create a solid foundation for the post-employment phase of your life, while also offering an acceptable amount of risk, stable returns, predictable cash flow and possible tax advantages. A financial plan that includes individual bonds and other fixed income products can help provide a level of confidence as you draw on earnings generated by your life-time savings. An advisor with fixed income expertise can determine which products and structures (short/long barbell investments, laddered bond portfolios, laddered CDs) make the most sense for you and your family and help you monitor and adjust your allocations as your needs continue to evolve.
Although fixed income can provide sustainable income, a more diversified approach may include dividend-paying equities to provide income and a component of potential capital appreciation. Simply put, your portfolio needs to keep growing to sustain withdrawals from the first day of your retirement until the last.
Financial planning in or near retirement isn’t that different from any other time in your life. You’ll still need to plan for your short- and long-term goals and monitor your plan regularly to ensure you’re on track to achieve them. The main difference is how you manage the various income streams to create a steady flow of income to cover your expenses when you’re no longer working full time.
The good news is your financial and tax advisors can help you structure yours in a way to maximize your current and future cash ow, while minimizing taxes. And, they can help you implement a systematic strategy to give your money the best chance of lasting as long as you need it.
*Diversification does not guarantee a profit nor protect against loss. Dividends are not guaranteed and will fluctuate. Bonds are subject to risks including credit risks and interest rate risks and if sold prior to maturity, you may receive more or less than your initial investment.