Stress is created by not knowing what the future holds. Even if it’s just walking into a situation you know nothing about, you are bound to experience some level of stress. Usually, this stress is manageable because most situations aren’t life changing. However, when it comes to your retirement planning, not knowing what is going to happen can make the stress unbearable.
Unfortunately, you aren’t going to know absolutely for sure what your golden years are going to look like in terms of income, which can cause an immense amount of stress the closer you get to retirement age. However, if you plan carefully, using proven retirement income strategies, you can predict with relative certainty how much money you are going to have when you retire. This can ease some of your concerns and help you look forward to your future instead of dreading it.
Even though there are many ways to create income during retirement , some of them are better than others because they are more predictable. Depending on what your financial goals are, choosing one of these strategies can lead to seamlessly passive income and a stable financial future for you and your family.
Of course, you don’t have to do this by yourself. Financial planners can give you direction to make sure you pick the right course of action for your goals.
Using Retirement Income Strategies to Guarantee Money for Life:
If your goal is to have a guaranteed income for the rest of your life, the best retirement income plan is to invest in immediate income annuities. These are annuities that you can get through life insurance companies and they offer a guaranteed income that is impossible to outlive. If this option sounds attractive to you, here is how it works. You are essentially creating your own pension plan by exchanging your mutual funds that you have in an IRA or 401k for a fixed income payout.
This strategy creates a predictable income that you can rely on for the rest of your life. In addition, your payments will likely increase over time to account for inflation. This will allow you to pay for increased expenses as the economy changes. The only drawback to this strategy is that you cannot change your mind and get a lump sum once your first payment is issued. If you suddenly need a large amount of money, you will not be able to access it through this annuity, so you will have to make sure you have other money available for emergencies and other unforeseen expenses. For this reason, many people choose to exchange only a part of their 401k or IRA so they have access to other funds.
Generate Retirement Income and Still Have Access to Funds:
Target Date funds are mutual funds that are similar to annuities in that they pay both principal and interest when you retire. However, unlike an annuity, these funds do not guarantee an income stream for life. The nice thing though, is that you do have access to your money whenever you need it. Target Date funds are designed to pay out the money in an account over a set number of years until it reaches a zero dollar balance on the target date.
This is one of the retirement income strategies that work best for people who have other funds that they can draw from once their target date is reached and there is no more money in the Target Date fund to pay out. It is important for retirees who choose this option to check in with their fund at least once a year to calculate about how long the money is going to last and make adjustments to the target date if necessary. A calculator that can help you do this can be found here.
Protect Yourself from Inflation:
Currently, interest rates are at historic lows and this means that dividend paying stocks are an excellent option for people who are looking for income and are willing to deal with the fluctuation of the principal amount. With this retirement investment option, you can purchase stocks, mutual funds or invest in a managed portfolio.
While dividend paying stocks are not going to provide you with a guaranteed income stream when you retire, you will receive a consistent payment while the money is still available. People who are already in their 60’s and who have a life expectancy of about 25 years can get current income from these stocks as well as in the future because of the inflation protection feature that is part of this strategy. If you want a guarantee though, this is probably not the right strategy for you.
Again, the type of retirement income strategies you choose is going to heavily depend on your investment preferences and retirement goals. If you don’t like not knowing what your income will be on a regular basis, a guaranteed income stream is the best way to go. If you have other funds available and whatever you get in terms of income from your investments is a bonus, one of the non-guaranteed strategies could be the right choice.
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