On the Web
January 31, 2012
Reports Explain Key Retirement Issue
The Society of Actuaries released a series of very readable reports dealing with specific issues, from how to handle a forced retirement to whether to withdraw savings incrementally.
“Around the time of retirement, there are so many decisions,” said Joseph Tomlinson, chairman of the working group that produced the new reports. The goal of the two-year project was to provide “friendly and unbiased” information, said Tomlinson, a Maine actuary and financial planner.
He said members of the professional organization also felt the public needed information that wasn’t from “someone trying to sell something – and we’re not.”
The online reports are free. Click here.
tags
retirement
I find that one of the questions rarely discussed as people approach retirement is how to actually start taking money out and living on it. We are told our entire lives to save and invest, but then what? What is the best strategy for actually starting to live on savings and investments? There has to be more to it than the 4 percent rule.
Retirement means flipping your behavior from work to play. Your portfolio must do the same: flip from growth to income.
Your first step is to identify your expenses. This is the center upon which your portfolio is based. You then compare your sources and amounts of income to your need: SSI, IRA, rentals, residuals, work, etc. The portfolio supplements all of these. It is designed to the dollar amount of your income need. If you need $1,500 after all other income sources are considered, then you need to earn 4 percent from $450,000, 5 percent from $360,000, 6 percent from $300,000 or 7 percent from $257,000. Beyond that, you cannot expect to go.
Try dividing your money up into “buckets,” each earmarked for a specific purpose, or perhaps time frame. Think of your buckets as being stacked, each then pouring over earnings (dividends, capital gains, interest, etc.) into the next bucket below. This is similar to “laddering” concepts for securities or CDs with differing maturities.
Let’s say you want to always have 6-12 months of expenses, liquid, at no risk. A money-market, savings account or short term govt. bond fund may be an appropriate holding pen.
Now let’s look at fixed monthly expenses, rent or property taxes, mortgage payment, gas, utilities, insurance, food and medicine. So consider one of the new fixed annuities with a lifetime guaranteed income payout feature (4%-6%) to cover essentials.
Why not earmark remaining assets for quality dividend-paying stocks and/or utility stocks to give you a periodic boost in your day-to-day money or to have money for extras? I’m talking about companies with sterling records of paying and growing dividends. That is what you’re going for…forget worrying about the value of the stock going up or down. You are looking for growth in dividends, since that is what you are using to supplement income. Even when share prices drop, often the dividends keep growing anyway!
So think about what you need to pay all your overhead and establish funding for them with no or almost no risk involved. After that, don’t be afraid to make well-thought out investments that pay you something on a regular basis to hold them.