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Retirement Income Planning

Throughout your working life, you’ve received a paycheck on a set, regular basis. And, you probably knew exactly how much each check was going to be. Now you’ve retired, and rolled over your 401(k) and other retirement plans into your IRA. You’ve saved diligently and have accumulated wealth within your plans, but now what? How do you transition your wealth into income to cover your living expenses?

We’re going to take a look at the different investments you might use to generate income, some strategies for distributing your income, a few things to keep in mind on an ongoing basis, and finally, we’ll look at additional planning that you should be doing at this stage of life.

Once you retire, you’ll want to reevaluate your overall asset allocation, to make sure your portfolio is structured to generate the income that you’ll need. Some of the investments that you may want to consider and the income strategies funded by those investments at this point are:

  • Bonds
  • Dividend-Paying Stocks
  • Preferred Stocks
  • Convertible Bonds and Convertible Preferred Stocks
  • Mutual Funds
  • Annuities

Distribution Planning

Once your needs are determined, your financial advisor can help you determine the right distribution strategy for you. Here are a few to consider:

Systematic Withdrawal. With a systematic withdrawal strategy, you take a fixed amount from your account on a periodic basis – let’s say monthly. Your account will likely have a combination of assets that are generating some income, but if, in a given month, your investments don’t generate enough interest and dividends to cover your distribution, you may also dip into some of the principal from your account. If you are using this approach, your overall allocation may have a greater allocation to equities to help make sure that your account growth keeps pace with your distributions and you aren’t depleting your nest egg too quickly.

Interest and Dividends only. If you are receiving fixed income from other sources, such as Social Security and a pension, you may want to consider this option. If you are in a position where you can tolerate a fluctuating distribution, using this strategy will help you to keep your principal intact, while still generating income for you. One common way to achieve this is through a bond ladder.

Bond Ladders. Bond Ladders can help balance the need for steady income while helping to maintain your principal investment by protecting you from fluctuations of interest rates while you continue to manage the cash flow from the bond investment.

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