Do you wonder how you can earn a decent income during retirement without too much risk? Here are some retirement income strategies that can protect and grow your capital while offering low-risk characteristics.
In this article:
- Retirement Income Planning
- How Much Do Americans Have in Their Nest Egg?
- Strategies for Your Retirement Income Funds
Get Income on Your Retirement Funds: 6 Tips
Retirement Income Planning
One of the main concerns for retirees or retirement planners is where and how to look for sustainable revenue. Some investments yield more than 10%, but with high yield, comes greater risk.
Income is necessary, but it’s wise not to risk incurring sizable losses to generate an income stream during retirement. A workable approach is to generate enough income, or as much as possible while preserving the capital.
New retirees or near-retirees are most exposed to the market’s big drops and adjustments. It can particularly be damaging to those who are in a withdrawal phase.
So, having a well thought out, multi-faceted strategy to deal with various markets is the best plan. Enough to generate an income stream but not too risky to keep you awake at night.
How Much Do Americans Have in Their Nest Egg?
A 2019 Fidelity Investments study of over 30 million retirement accounts found that the average balance in 401(k) plans at the start of 2019 was $103,700.
The figure was $107,100 for traditional, Roth, and rollover IRAs, and other defined-contribution retirement plans, such as 403(b)s, were $85,800.
Strategies for Your Retirement Income Funds
1. Fixed Deposit Savings
One of the safest options for your money is a certificate of deposit (CD), usually at a fixed interest rate for a set period of up to five years. Although your capital is preserved, this type of account yields a low income, which will get worse as the Federal Reserve cuts interest rates further. There is a place for these accounts, as they offer better returns than traditional savings accounts, and are still reasonably accessible. Once inflation is taken into account, there’s not really much left of the income.
More people have been putting their money into higher-risk assets because traditional savings accounts are offering too low yield. Don’t let fear overwhelm you and keep all your funds in savings accounts. Continuing to do this now, in a bull market, would mean losing gains and income.
2. Maintain Good Long-Term Returns
Retirement can be 20-40 years long, so retirees also need a respectable return on their investment in the long-term to beat inflation and so as not to outlive savings.
3. Have a Multi-Basket Approach
Diversify your investments in a variety of asset classes, strategies, and stocks, so all your eggs aren’t in one basket. Having some cash reserves will balance out your income flow, improve overall returns, and minimize risks and drawdowns.
4. Maximize Social Security
Social Security benefits are realized by your employment history and age you started and stopped work. Working for at least 35 years is the best strategy to boost your gains. Earnings of up to $132,900 (2019) are used to calculate benefits, and working to full retirement age will ensure income is not reduced. In fact, if you wait until 70 to claim, you’ll get an increase in benefits.
5. Use Home Equity
If you have some, you could also tap into the equity in your home to release some funds. This could mean selling your home and downsizing to gain a lump sum to save or invest further or taking out some form of equity release loan. Don’t rely on the value of your home too much because house prices can easily fluctuate or suddenly drop, especially in economic crises, where your home equity can be wiped out. Home equity release is an excellent backup to existing retirement income strategies.
6. Maintain Part-Time Employment
If you want to remain active and still obtain an income, then working part-time is a good option to satisfy both matters. You’ll be able to stretch your savings further and maximize your Social Security benefits in doing so.
Barbara Friedberg, from US News, contributes “7 Ways to Lower Your Retirement Income Risk”, and says retirees or retirement planners should know specific strategies to reduce risks to retirement income, such as: –
- Annuities combat sequence of return risk.
- Lower your investment risk with dividends.
- Protect income with a variable withdrawal rate.
- Cut retirement income risk with the bucket strategy.
- Include real estate for best retirement investments.
- Sell option contracts on existing stocks for retirement income.
Ensure you have a clear strategy that has your needs covered. Define goals to protect your assets and savings, and provide an income based on your risk tolerance. Seek professional advice to reduce the chances of you not having enough income during retirement.
What plans do you have in place for your retirement? Did your retirement plans turn out as they should? Please comment below.