Retirement Salary Generation – Retirement Income Planning Series

Whatever your retirement dreams are, they can still be realized. It just depends on how you plan and manage your resources. On any trip, it is helpful to have an idea of ​​where you are going, how you plan to travel, and what you want to do upon arrival.

If this sounds like a vacation, well, it should. Most people spend more time planning a vacation than doing something like retirement. And if you think of retirement as the next step in your life and approach it appropriately, you won’t be bored so easily or run out of money to continue the journey or get lost and make bad financial decisions along the way.

What matters is how you handle

How much you need really depends on your lifestyle. And it doesn’t have to be that your retirement spending will go down. Assuming you have an idea of ​​what your annual spending might be in today’s dollars, you now have a goal to aim for when planning and investing.

Add up the income from the sources that you expect to retire. This could include Social Security benefits (the system has been able to pay for at least 25 years), any pensions (if you’re lucky enough to have such an employer-sponsored plan), and any income from work or that new career.

Donation Spending: Imagine Being Like Harvard or Yale

Consider using the same approach that supports the work of large organizations and foundations. They plan to stay with the company for a long time, so they focus on the cost level that allows the organization to support itself.

one.Define your gap: Take your budget, subtract your expected sources of income and use the result as a target for your withdrawal. Keep this number at no more than 4% -5% of your total investment portfolio.

2.Use a mixed approach: Every year, look at an increase or decrease in withdrawals based on 90% of the previous year’s rate and 10% of portfolio performance. If it grows up, you will get a raise. If the cost of your investment drops, you will have to tighten your belts. This works well during inflation, helping you maintain your lifestyle.

3. Stay up to date: You may be tempted to bail out in the stock market. But even though we had a roller coaster ride, it is still wise to allocate some of the stocks for stocks. Given that people live longer, you can use this rule of thumb to distribute by stock: 128 minus your age. However, you really should keep at least 30% of your investment portfolio (not including insurance money) in stock.

If you think the stock market is intimidating because it is prone to periods of sharp fluctuations, think about the inflation risk to your purchasing power. By themselves, bonds and CDs have historically failed to keep pace with inflation. Only equity investments have demonstrated this opportunity.

But invest wisely. While asset allocation makes sense, you don’t have to be loyal to the buy-and-hold principle and put up with being rocked like a yo-yo. Your main distribution can be complemented by more tactical or defensive investments. And you can change the stock ratio to soften the roller coaster effect. Consider including shares of large dividend paying companies. And add asset classes that aren’t tied to the ups and downs of major market indices. These alternatives will change over time, but the protective ring around your core must be re-evaluated from time to time to add things like commodities (oil, agricultural products), raw material producers (mining companies), distribution companies (pipelines), convertible bonds, and managed futures. …

4.Invest for income: Don’t just rely on bonds, which have their own set of risks compared to stocks. (Think about the risk of a credit default or the impact of higher interest rates on your bond’s fixed income coupon.)

Mix your bond packages to take advantage of the characteristics of different bond types. To hedge against the negative impact of higher interest rates, consider using floating rate corporate bonds or mutual funds to which they belong. By adding high-yield bonds to this set, you will also provide some protection against a possible rise in interest rates. While they are called junk bonds for a reason, they may actually not be as risky as other bonds. Add in Treasury Inflation Protected Securities (TIPS), which are fully backed by the trust and confidence of the US government. Add emerging market bonds. Despite the presence of foreign exchange risk, many of these countries do not have the same structural deficits or economic problems as the United States and developed countries. Many have learned from the debt crisis of the late 1990s and have not invested in exotic bonds created by financial engineers on Wall Street.

Include dividend-paying stocks or mutual funds in your set. Large foreign firms are an excellent source of dividends. Unlike the US, there are more companies in Europe that pay dividends. And they pay monthly, not quarterly like here in the US. Balance this with hybrid investments such as convertible bonds, which pay interest and offer a rate boost.

5. Create a safety net: To sleep soundly at night, use the bucket method, dipping into the investment bucket, to replenish the reserve, which should cover 2 years of expenses in the form of almost cash investments: savings, staggered CDs and fixed annuities.

Yes, I said annuities. This safety net is supported by three supports, so you don’t invest all your eggs in annuities, much less a fixed term annuity. For many, this can be a curse word. But the best way to get a good night’s sleep is to know that your “necessary” expenses are being covered. You can get relatively inexpensive fixed annuities without all the bells and whistles associated with other types of annuities. (While tempting, I would rather opt out of “bonus” annuities due to the long schedule of commissions per change). You can alternate their terms (1 year, 2 years, 3 years, and 5 years) like CDs. To minimize the risks for one insurer, you should also consider spreading them to more than one well-rated insurance company.

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