By rob Snell
During your working years, you’ve probably met the costs of living through your salary. But once you retire, where will the money come from? Is there a way to give yourself a “paycheck” for retirement?
There is indeed—but you’ll have to do a good job of managing your available income sources. Here are some moves that can help:
• Accept dividends and interest payments. Instead of automatically reinvesting all your dividends and interest payments into your portfolio—which is an excellent strategy for building wealth—you might want to begin receiving these payments as part of your income. Keep in mind, though, that companies can lower or discontinue dividends at any time. However, it’s also true that some companies have consistently paid, and even increased, dividends over many years, and even decades.
• Choose an appropriate withdrawal rate. Once you’re retired, you’ll likely need to begin withdrawing from your investment accounts. But you’ll need to avoid taking out too much early in your retirement. You don’t want to risk outliving your portfolio. For many people in their mid-60s, a 4 percent annual withdrawal rate is a good starting point, but everyone’s situation is different, and your ideal rate will depend on several factors: your age, the size of your portfolio, other sources of income, and so on. Once you turn 72, you’ll be required to take at least a minimum amount from your traditional IRA and 401(k), but you can choose to withdraw more, if necessary.
• Maximize your Social Security. You have significant control over the amounts you’ll receive from Social Security. You can begin taking these payments at age 62, but they will be much larger if you wait until your full retirement age, which will likely be between 66 and 67. (You will receive the maximum amount if you wait until you reach 70.)
So, if you think you have enough income from other sources, you might decide to delay taking Social Security, But if you need the money, you may not be able to wait. And here’s something else to think about: If your spouse had considerably higher earnings than you did, you may be eligible for spousal benefits.
• Consider an annuity. You might want to consider purchasing an annuity that provides lifetime payments. Some annuities are even indexed for inflation, meaning payments will increase or decrease each year, keeping pace with the Consumer Price Index. Annuities are not suitable for everyone, though, so, before investing in one, you should consult with a financial professional who is familiar with your situation.
• Finally, don’t rule out the possibility of earned income. Just because you’ve retired from your full-time job doesn’t mean you can’t work in some capacity, perhaps by doing some part-time work or consulting or even opening your own small business.
Look at all these ideas when thinking about putting together an income plan for your retirement. You may find that your diligence will pay off.