Do you know how to turn your growth investments into an income stream for retirement? If you’ve been diligent about saving for a number of years and are heading toward retirement, you’ll need need more than just some casual advice for the transition. You’ll need a well-planned income strategy that’s tailored specifically to your situation and goals.
While there are many ways to generate income, you’ll need to ask yourself some important questions, such as how much monthly income you will need in retirement and how much annual income will be guaranteed (pension, social security, annuity income). You’ll need to determine minimum living expenses for each month and estimate how much you’ll want for other expenses, such as travel or entertainment.
According to an Employee Benefit Research Institute Survey from 2015, almost 40 percent of retirees discovered that their expenses in retirement were higher than they ever anticipated or planned for over the years. Most people estimate withdrawing three or four percent per year with a 30 year time horizon, then adjust if and when needed for inflation.
Bonds are one way to generate interest income. Bonds are essentially loans from the government or a company and they pay out a predictable amount. Money market funds and certificates of deposit, also known as CD’s, pay a set amount of interest for a period of time. Income can also be earned by investing in real estate income trusts, also known as REITs, and master limited partnerships or MLPs. These investments also pay out regularly and could be included in an income plan.
Annuities can also be good choices for some, since they can bridge an income gap. Investing a sum of money into an annuity will turn on an income stream at a specific point in time, depending on the product you choose, and can even provide payments for the rest of your life. Annuities can have other benefit options as well. If you’re lucky enough to be in the small group of those who still have a pension, you will need to determine whether withdrawing the money or turning on an income stream will work for your retirement plan.
Whether you choose to delay Social Security benefits or take them when you’re of age can affect your retirement income. If you’re married, the spousal benefit allows some choices to help you maximize benefits in retirement. However, if you’re counting on your Social Security check to make ends meet, then it’s a good idea to speak with a financial professional regarding your retirement plan. Planning for that check to be the safety net rather than the lifeline is smart.
An investment plan with an income strategy that takes you throughout your retirement years is essential. Your financial professional will help design your income plan, periodically check it and rebalance if necessary, and ensure that it stays on track to deliver the income you need.
Would you like to discuss how to create a customized retirement income strategy? Click on the button below to request your free 15-minute phone consultation with a Bayntree financial advisor.
Bayntree Wealth Advisors, located in Phoenix and Scottsdale, Arizona, provides comprehensive financial planning and wealth management. The Bayntree team specializes in all aspects of financial health, including retirement planning, risk management, investment advice, tax strategies, estate planning and insurance.
Bayntree does not provide specific legal or tax advice. Please consult with your tax advisor or legal professional for guidance with your individual situation.