You have worked long and hard and fortunately the fruits of our labor have allowed you to save for retirement. Now that you are looking to supplement your traditional income with retirement or investment income it is important to look at the hard earned nest egg and determine how this egg will feed you for the rest of your life. There are many options for liquidating your retirement savings into retirement income but not all options are equal. In this article we will discuss how to implement these retirement income strategies in order to provide you with an income you can depend on.
Now that you are ready to relax and enjoy your life’s work you will most likely look at the large dollar amount you have saved. While looking at this figure and congratulating yourself on a job well done it is important not to forget that this sum will have to support you for the remainder of your life, a life that may very well continue for 20 or 30 more years. This increased life expectancy and increasing cost of living is the primary concern for most retired Americans, “How do I guarantee that my retirement savings provides me with retirement income for the rest of my life?”.
Life insurance companies and financial banks have fortunately designed products specifically for assisting today’s retirees with transitioning retirement savings into retirement income. Increasingly growing in popularity with retirees are annuities. Annuities can be very useful because of the guaranteed safety of your investment, tax deferred treatment of interest growth, and life time income options. A Traditional diversified investment portfolio consisting of stocks and mutual funds can help provide an emergency fund for those unexpected twist and turns in life. Social Security does not provide an opportunity for investment growth or liquidity but it does offer a continues fixed income stream.
In order to answer the question of how to guarantee your retirement savings provides you with a retirement income for life, you will need to implement a plan that includes all three: Annuities, Stocks and Mutual funds, and Social Security.
The foundation of your retirement income may be social security, however, the majority of your retirement income will be generated by your annuity.
You will invest approximately 30% to 50% of your retirement savings in an annuity and then invest the remainder in a diversified stock and mutual fund portfolio. As discussed above the annuity will provide you with a guaranteed life time income that you can never out life. Your traditional investment portfolio will provide you with continued investment growth while also allowing access to larger sums of money in case of emergencies or extravagancies. Not to be overlooked in this plan is your social security payments which will supplement your large annuity income payments with modest income payments for as long as you live.
In order to fully implement your plan it is import that you have the trusted assistance of a licensed life insurance agent to guide you with your annuity purchase. In discussing your annuity options with your life insurance agent you will want to determine the amount of income the annuity will need to provide in order to supplement the short fall of your social security and pension (if you have one) income. Once you identify the amount of income needed you can then calculate the amount of principal deposit necessary for you annuity.
When investing the remainder of you retirement savings in stock and mutual funds you will want to find a balance between conservative investments in order to hedge against market volatility and investments that are positioned to generate future investment growth. You will also want to gradually scale your stock and mutual fund portfolio towards equities as you get older.
Once you have the pieces of your investment pie put together you are able to calculate your short term and long term retirement income. This will give you the peace of mind knowing how much money a month you will have to live on and knowing that this amount will be guaranteed for as long as you. The sooner you begin this process the sooner you will be able to adjust your expenses in accordance with your new retirement income stream.