5 Ways to Keep Your Income Flowing During Retirement

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5 Ways to Keep Your Income Flowing During Retirement

So now that you’re closing in on hanging it up, do you have an idea of how you’ll pay yourself once you no longer have someone paying you? Retirement planning boils down to this: making sure you have enough income to meet your retirement goals once you’ve stopped working for income. That is, you need to create a stream of income from your pool of assets. But how?

Here are five strategies to consider:


At retirement, you take an initial withdrawal from your portfolio of a certain percentage and then adjust that withdrawal that same percentage each year for inflation. You can do this with any percentage, but the strategy started with 4% as the standard. For example, with a $500,000 portfolio, you would take $20,000 in year one (4% of $500,000), then in year two, you would adjust by 4% and take $20,600 and so on. Some researchers have shown that this  strategy could make your money last for 30 years.

Others argue 4% is too low and you could end up leaving most of your money behind, while still others have data to prove 4% is too high and you’ll run out of money altogether. If you go this route, resist the temptation to set it and forget it. It requires monitoring and adjusting as needed. Remember, everybody’s situation and objectives are unique.



The Financial Planning Association (FPA) defines the bucket strategy as setting up separate pools of investments with lowest-risk investments in the near-term segment, somewhat higher-risk investments in the next segment, and the riskiest portfolio (highest reward) in the longest-term segment. You then draw income from one segment at a time, using assets from the next bucket for income when the current bucket is depleted.

Sounds good, right? But spending isn’t equal across the short- to long-term (see “Go-Go, Slow-Go, No-Go”). And many planners recommend more than three buckets, while others pull from other buckets before the first one is empty. Like any strategy, it isn’t totally black and white. It takes constant monitoring and adjusting to match the dynamic nature of retirement.



The FPA defines flooring as classifying retirement expenses as essential or discretionary. Essential expenses are funded by annuity guarantees or low-risk investments. Discretionary expenses are funded by a mix of medium- and high-risk investments. By annuitizing a portion of the portfolio to pay for everyday expenses, you can lock yourself into fixed income.

The good: you don't run the risk of running out of money at the end of retirement like the first two strategies. The bad: you run the risk of under spending and living at a reduced lifestyle. In addition, you could run short on liquidity if an unexpected expense calls for a large lump sum of funds.



While assessing strategies that "best balance the risk of outliving wealth against the cost of unnecessarily restricting consumption,” the Center for Retirement Research at Boston College concluded that the IRS's required minimum distribution rules may be a viable alternative. Under the RMD rules, assets must be distributed and included in taxable income on the April 1 after a person reaches age 70½. Using this worksheet, you can figure this year’s required withdrawal for your traditional IRA. Each year the divisor changes, as does the amount in your account based on investment performance. This is a simple, straightforward income strategy. But is it right for you?



An even more straightforward approach is leaving the principal in your accounts and using only the dividends on stocks or the interest on bonds or certificates of deposit to provide income in your retirement years. The trouble is, only a small percentage of people are able to afford to use the interest-only strategy to fully meet their income needs in retirement.

With the finish line in sight, it’s essential that you have a plan in place to help manage your retirement with confidence. The last thing you want to do is outlive your money – or, put an unnecessary burden on family members to care for you financially. Having a plan, being fluid with your budget, and leveraging resources at your disposal will go a long way in helping your golden years be golden.


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