[VIDEO] 3 Ways to Turn Retirement Savings into Income
When you think about it, we go through 2 very distinct phases with our money throughout our lives. Most of our time is spent savings for retirement, and this is often referred to as the accumulation phase. But, when the time comes where we stop working and begin living off of what we’ve saved all those accumulation years, we enter the distribution phase. So, how do you turn that nest egg you’ve created over the years into steady income? Well, here are 3 ways you can make this happen
One way you can accomplish this is referred to as annuitization. Income annuities take a lump sum of cash you’ve saved, and turn it into guaranteed monthly income for life. It’s sort of like creating a pension. You can purchase an annuity that has inflation adjustments, access to some of the principal, or even death benefits to a survivor, although, as you might expect, these features will usually lessen your monthly income payments. Also, please keep in mind that income guarantees are based on the claims-paying ability of the insurance company, so it may serve you well to shop around or work with an independent advisor who has access to multiple top tier companies, so you can weigh the pros and cons of each
The second way is the 7% optimal withdrawal rate. You may have heard of the 4% withdrawal rule before, but industry guru Wade Pfau has argued that a 7% initial withdrawal rate is more optimal. He says that it’s a great balance between the demands of higher income and protecting retirement savings. But, it does come with risk. Ideally, you should be more risk-tolerant and have income coming from other means, such as Social Security, before considering this option. You probably should sit down with an experienced financial advisor who can run projections for you to see what effect this decision may have on your overall plan
And a third way to turn your nest egg into retirement income, live off investment income. If possible, there may be a way to retire without depleting your nest egg at all. Rather than withdrawing principal, you can simply live off investment dividends and interest income. However, this income strategy may produce lower income, thanks partly to unimpressive yields and dividends that many stocks and bonds are currently offering.[i] Further, there are other risks associated with this strategy, so, once again, it may benefit you to sit down with an investment professional to help you navigate these waters.
Do you have a clear and concise retirement income plan? If you don’t, you’re not alone, BUT you probably should. Feel free to give us a call anytime and we can help map out an effective and fruitful income retirement plan that works for you and your family over the long haul.
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[i] https://www.forbes.com/sites/financialfinesse/2018/03/04/5-ways-to-turn-retirement-savings-into-income/#6bce0d3a68f3
