Most people work 35 to 45 years or more. It’s a long haul, and when it’s finally over, they deserve to enjoy their retirement. If they’ve been diligent about their saving and overall retirement planning, the fruits of their decades of labor can be quite rewarding.
Knowing how to navigate the distribution phase of retirement is crucial. And the first thing to know is that retirement planning doesn’t end on your last day of work – when the distribution phase begins. This is when you start using the savings and investments built up during the accumulation phase to supplement regular income from Social Security, pensions and other income streams while supporting your retirement lifestyle. And though this new stage of life you’ve worked so hard toward can be fun and liberating, the idea of spending money with no income from work can cause stress and worry. Did you save enough, and will it last long enough?
Once you’re ready to retire and are living off your assets, you can ease your concerns by having a strong grasp of your distribution plan. Here are some steps you can take to come up with a plan before retirement that will allow you to determine your income needs, take distributions smartly and retire comfortably.
Start with your priorities
If you plan to travel extensively, you’ll want to build that priority into your budget. If you’re a homebody, your priorities will be geared more toward maintaining your home and spending on your hobbies. Someone who wants to leave a legacy would have a different way of investing, because they’re looking at long-term objectives with their money.
It helps to have an honest conversation with your spouse to see what’s important to you both. Write down the top five things that matter to you and discuss them together.
Focus on principal-guaranteed accounts
Unless they are significantly downscaling their lifestyles, most people in retirement can expect to spend 20% more than they did during their working years because they will be full-time consumers. Thus, it’s important to know where the money will come from.
One dependable stream is from a bucket containing principal-guaranteed accounts – certificates of deposit, fixed annuities, market-linked CDs and fixed-index annuities. The other bucket contains growth accounts, which are where investments can fluctuate in value, such as stocks.
The idea is to draw distributions from cash but not from the stock bucket. The stock bucket can be partially liquidated occasionally as is necessary to replenish cash, but only when the market is up.
Overall, it’s important during the distribution phase to control the withdrawal rate so …….