What’s the top concern for the vast majority of people anticipating retirement? Is it their health? Is it where they’re going to live?
The number one question that keeps potential retirees up at night is whether or not the money they’ve saved will be enough to last. The goal is to be able to have a portfolio that can provide enough income for you to live the way you want without pulling from your capital.
There are a number of ways you can do this.
Determine your IRA’s needs
As always, the very first step that you need to take before doing anything with your portfolio is to determine what your actual retirement needs will be. It varies from person to person; some people choose to live luxuriously in their retirement, taking trips and eating out like they never did when they were raising a family and working long hours. Others choose to live frugally. The amount you plan to spend can have as great an impact on how long your capital lasts as how much capital you have, and so does the amount of growth potential your capital offers. These aspects of money management – capital, income and growth – will determine how long your money lasts and how comfortable your retirement will be.
There are a number of ways that cash flow, or income, can be generated during retirement years. Most people’s homes have been paid off by the time that they retire, eliminating a major expenditure and enabling them to access a reverse mortgage if money gets tight. Some people choose to purchase investment properties in their self directed IRA and then hire a property management company to take care of it. Choosing properties that are in good condition and in a good location, and making sure that they’re producing income before you retire are priorities, but doing so often helps eliminate the need to watch the stock market and worry about your investments. That’s not to say that other investments aren’t useful, or sometimes even necessary – diversification is important.
Being strategic about social security is another important point. Timing is everything, and for those who can, it’s a good idea to delay collecting your initial payments, as it can make a very big difference in what you receive. It’s also important to remember that delaying your social security payment will benefit your spouse in case of an untimely accident, as it will also increase the amount that they receive.
Take advantage of your pension funds
For those who are fortunate enough to still be entitled to their pension, it is another valuable monthly payment that will defer the amount that you need to withdraw from your portfolio. In lieu of that disappearing resource, many people now opt for purchasing immediate annuities. Purchasing an annuity will lock in current rates, so in today’s low-interest market that works against you but they do provide a steady flow of income, and generally provide more than corporate bonds. Investing 20-50% of your capital into one of these funds preserves half of your capital and, when combined with Social Security, can usually provide enough income.
Most retirees are able to provide a monthly payment into their checking accounts from dividends and interest that arise from their portfolio, while others create a scheduled withdrawal that allows for a balanced drawdown combined with the possibility for growth in what remains. Though people often cite a figure of 4% as the appropriate amount to withdraw, relying on this figure is usually not a good plan. It is better to keep your eye on the stock market and watch for volatility – in years where the market is down it’s better to reduce the amount that you withdraw, thus preserving your capital.
As is always the case when it comes to money, diversification is everything, not only in what kind of investments you make but also in the length of time that you are tied into each of them. One thing that smart investors do is to make certain that you have a certain amount of your portfolio available for immediate liquidity, another for short-term expenses and a third for long term expenses. The rule of thumb for available cash is generally having enough to purchase a car, as that is likely to be the largest expense that you are likely to have as long as you have adequate medical insurance coverage.
See to it that your IRA continually grows
Making sure that your portfolio continues to grow is the other side of the retirement equation; if your investments continue to grow, then your capital will be able to generate more income, optimistically allowing your portfolio to grow a bit, and prevent it from being hard hit by inflation. In most cases, investment in the stock market in blue chip stocks rather than in bonds will provide you with the most growth potential with the lowest risk, while also paying out the highest dividends.
Finally, it is important to remember that just as when you were young and starting out, it is important to pay attention to the way that you are spending. This includes making sure that you are maximizing any entitlements that you may have coming your way, even if it means something as simple as using your senior citizen discounts. Some seniors choose to find a part-time job, not only for the income it generates but also to keep them engaged.
All of this piled with a checkbook IRA work wonders to significantly improve your income in retirement, helping you live more than comfortably.