Income Strategy 1: INTEREST AND DIVIDENDS ONLY
You can fund your retirement from the interest and dividends generated from your savings. If you go this route, withdraw principal only if necessary. This approach is simple, straightforward, and easy to manage. However, it does require a big portfolio – about 30 times the amount of your first-year withdrawal. It also doesn’t take inflation into account, which will affect your spending habits throughout your long retirement.
How it works:
- Invest retirement savings into investments that will generate income. Utilize bond sectors and maturities to manage your income.
- To counteract inflation’s impact over time, it is best practice to invest your portfolio in stock investments that have large potential growth. There might be a little risk accompanied, but if you’re looking for a long retirement, this is the way to go.
- Draw from investment principal only if needed. In this strategy, you can withdraw interest and dividends as they generate.
Income Strategy 2: INVESTMENT PORTFOLIO – TOTAL RETURNS
With this income strategy, you are able to draw income from the interest earnings of your investments. You can pace your earnings with withdrawals from your principal. This strategy is great because you can generate an income that has the potential for growth. You might not be able to cover all your expenses with the interest and dividends from investments, so combining that with principal withdrawals is ideal.
How it works:
- According to an asset allocation plan, you’ll invest retirement savings that reflect your time horizon, risk comfortability, and other income goals.
- Withdraw investment earnings and proceeds from selling investments at a set rate, starting at 4% of your portfolio’s value from the first retirement year, which will give you a high probability of keeping at that withdrawal level for 30 years.
- To keep up with inflation rates, increase your withdrawals each year.
Income Strategy 3: TOTAL RETURN WITH ANNUITY – INVESTMENT PORTFOLIO WITH GUARANTEES
An annuity is a long-term investment with an insurance contract that ensures a stream of income. Annuity income can be guaranteed for life, so this approach is ideal to supplement with investment income. You will feel more comfortable about investing from your portfolio into higher-risk, higher-return investments because you’ll know a portion of your expenses will be covered by your set income.
How it works:
- Purchase an annuity with your retirement savings. You’ll receive a set income over a set period of time.
- Invest the remainder of your retirement portfolio in a variety of income/growth investments that will provide you with an income, depending on the health of the market.