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Forty-six percent of investors in the U.S. are worried they will outlive their savings in retirement, according to a recent Wells Fargo/Gallup survey. In fact, 36 percent of retired investors and 50 percent of investors who aren't retired are concerned they will run out of their own money and eventually depend on Social Security for their main source of retirement income.As Baby Boomers stream into retirement at a rate of 10,000 per day, one of the biggest challenges they face is making sure they have an income stream in place that can support their desired lifestyle throughout their golden years. The objective is to turn assets accumulated throughout one’s working years into available cash to cover living expenses throughout retirement.
Tapping into a variety of retirement assets, from personal savings to pensions, IRAs and 401(k)s is complicated by a laundry list of distribution requirements, potential penalties and tax liabilities that can seem overwhelming to the uninitiated or unprepared.
For the first time in history, Baby Boomers are entirely responsible for funding their own retirement and creating an income stream that can last 30-40 years after they leave the workplace.
According to investment advisor Jeremy Keating of Capital Income Advisors in San Diego, there are some basic steps involved in planning for retirement that includes a guaranteed income stream:
• Determine how much cash can be safely withdrawn without running the risk of outliving one’s cash.
• Determine how to turn assets into income.
• Categorize assets into three distinct buckets—the taxable bucket; the tax-deferred accounts, such as a traditional IRAs or 401(k)s, and the tax-free accounts, such as a Roth IRA—to help put one’s nest egg into perspective.
• Determine the most advantageous time to begin drawing Social Security.
Developing a sustainable retirement strategy, individuals must consider age, life expectancy, living expenses and rate of return on their investments. For individuals who retire after age 65 with adequate savings and in generally good health, the rule of thumb is to draw down no more than 4 percent of their portfolio each year, gradually adjusting that rate higher to account for inflation.
“One of the most important services a financial advisor can offer investors is a well-structured and sustainable retirement income strategy that allows the retiree to confidently spend during retirement without the worry of running out of money,” Keating says.
“Considering that 99 percent of people won’t be able to live off their interest alone without touching principal, it’s also nice to know that some annuities offer a guaranteed income stream, even if the investor’s principal is exhausted over time.”
The most widely used bucket strategy is the time-segmentation approach, which assigns each bucket to a defined time period in retirement, based upon the retiree’s risk tolerance and time horizon.
The time-segmentation strategy anticipates that the allocation will shift over time to traditionally more conservative asset classes as the retirement savings are drawn down.
Another strategy is the essential vs. discretionary approach, which means funding essential income needs with less volatile assets, and building an income floor while investing in more aggressive assets for discretionary expenses.
While a probability-based approach, or total return, like systematic withdrawals may be fine for retirees who are comfortable with market risk and adjusting their plans periodically, other retirees prefer a safety-first approach to retirement income planning. Flooring can provide safety benefits to retirees by creating a pension-like income at a time when formal pension plans are scarce. By targeting an income floor amount, and connecting that amount with certain or guaranteed income sources, any remaining assets are freed-up from income generation duties and are able to remain at-risk for purposes of discretionary wants, inflation protection, long term care needs, and philanthropy.
Typically, the income floor is established using either a bond ladder or income annuities. Either choice allows some degree of certainty of income, making it possible to pair the income generated with the need.
Baby Boomers who retire early, or find they have to dip into their nest egg's principal to sustain themselves, may have to dial back their withdrawal rate and supplement their income by working part-time for awhile.
The retiree’s withdrawal rate should leave them with enough income to cover their living expenses until age 100, since Americans are living longer and incurring greater medical costs than ever before.
Another decision retirees need to make before reaching age 65 is when to begin drawing Social Security, keeping in mind that the earlier an individual collects, the less they receive.
Most important in securing a guaranteed income stream is to map out a retirement withdrawal strategy, and make sure to take the time to understand the rules, penalties and tax liabilities associated with each account.
Remember, the trick to making a nest egg last is not the size of the retirement portfolio, but how well the portfolio is managed. An experienced income advisor can help individuals plan a comfortable retirement with a guaranteed income stream that they won’t outlive.
Contact Info:
Name: Jeremy Keating
Email: Send Email
Organization: Capital Income Advisors
Phone: (800) 875-1986
Website: http://capitalincomeadvisors.com
Source URL: http://councilofeliteadvisors.com/liftmedia
Release ID: 90573
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