financial advisor

Retirement Income Strategy

By Fred Banbury 8 June, 2023 3 mins read

Your retirement income strategy must be determined based on when you expect to retire. Most retirement strategies assume a predetermined, fixed retirement horizon. One way to mitigate longevity risk is by insuring your retirement income stream. This strategy guarantees a regular income stream for your entire life and eliminates longevity risk. Clients pay upfront to an insurer that promises a regular income over a period of time. The comfort level of your retirement income stream must be balanced with the convenience of principal access, beneficiary payouts and expenses.

Retirement strategy that is interest-only

A interest-only strategy for retirement income is a great option because you don't have to worry about how to maintain your principal. Because your retirement assets don't have to be exposed to market fluctuations this is a lower-risk, less stressful option. However, it's important to consider inflation when planning your portfolio. Your retirement income strategy should be based upon your final income goals. To ensure that your retirement fund will remain sufficient, consider diversifying your portfolio.

Lifetime annuity with inflation protection

Annuities aren't designed to deal with inflation. Annuities will allow you to spend less early on because your payout rate is lower. You will still have assets to manage if you intend to spend more later in life. You can lower your chance of losing money by avoiding inflation in annuities. You can avoid market volatility with a lower distribution rate.

Bucket strategy

By investing in multiple assets, you can establish a bucket retirement strategy to generate income when you retire. You should have enough money in your near-term bucket to cover your expenses for the first five years after retirement. These assets should be held in low-risk, liquid assets. You can put money in intermediate buckets that have low- or moderate-risk assets and earn some investment return. High-risk stocks are not recommended, but some growth may be appropriate for retirement years 6-15.

4% rule

While the 4% rule may sound like a good rule of thumb when it comes to calculating your target retirement income, it's not foolproof. It is based in historical data that spans 1926 to 1976. It was built on data from the 1930s, which allowed for rate increases that kept pace with inflation. Your withdrawal rate should be determined based on actual inflation rates. The Federal Reserve sets an inflation target rate of two percent.

Investing in stocks which generate income

Many investors long to live off dividend income in retirement. With low yields on bonds, rising life expectancy and high stock market values, the current financial environment can make it difficult. A diversified portfolio with quality dividend stocks is a good way to avoid all these problems. Dividends typically outperform price appreciation, which makes a retirement income strategy with quality dividend stocks even more appealing.

financial advice for seniors in retirement

Creating a detailed budget for the rest of your life

You should include both fixed and variable expenses in your budget for the remainder of your life. Fixed expenses, such as your mortgage payment, should not be altered. Variables, such your electric bill or car payments, can be estimated by reviewing your previous spending habits. You should also include necessary expenses, such as rent or mortgage payments, as these are likely to remain the same even after retirement. The largest difference is healthcare, which will need to be covered.

FAQ

What are the Benefits of a Financial Planner?

A financial plan is a way to know what your next steps are. You won't be left guessing as to what's going to happen next.

It provides peace of mind by knowing that there is a plan in case something unexpected happens.

A financial plan can help you better manage your debt. If you have a good understanding of your debts, you'll know exactly how much you owe and what you can afford to pay back.

Your financial plan will also help protect your assets from being taken away.

What is estate planning?

Estate Planning refers to the preparation for death through creating an estate plan. This plan includes documents such wills trusts powers of attorney, powers of attorney and health care directives. The purpose of these documents is to ensure that you have control over your assets after you are gone.

What Are Some Of The Different Types Of Investments That Can Be Used To Build Wealth?

There are many types of investments that can be used to build wealth. Here are some examples:

Stocks & Bonds
Mutual Funds
Real Estate
Gold
Other Assets

Each of these has its advantages and disadvantages. Stocks and bonds can be understood and managed easily. They can fluctuate in price over time and need active management. However, real property tends better to hold its value than other assets such mutual funds or gold.

It comes down to choosing something that is right for you. The key to choosing the right investment is knowing your risk tolerance, how much income you require, and what your investment objectives are.

Once you have determined the type of asset you would prefer to invest, you can start talking to a wealth manager and financial planner about selecting the best one.

Statistics

A recent survey of financial advisors finds the median advisory fee (up to $1 million AUM) is just around 1%.1 (investopedia.com)
As of 2020, it is estimated that the wealth management industry had an AUM of upwards of $112 trillion globally. (investopedia.com)
According to a 2017 study, the average rate of return for real estate over a roughly 150-year period was around eight percent. (fortunebuilders.com)
These rates generally reside somewhere around 1% of AUM annually, though rates usually drop as you invest more with the firm. (yahoo.com)