When you get close to retirement your needs change from saving to needing a stable IRA income stream. Creating that IRA income stream is really simple but there are so many options that it can be confusing. Making sure you don't make any mistakes in the next 3-5 years is pivotal in keeping you in retirement. No one wants to go back to work and if you set your income stream up correctly you will never be one of those people.
Creating an income stream in retirement is usually done by taking a percentage of your 401k assets. Usually 4-6% is used to provide income. If you have $2,000,000 saved then 4% is $80,000 per year in money paid to you. The idea is to take any extra earnings and add them to your principal balance to increase its value. Then your 4% becomes more income for the next year therefore keeping your money inflation indexed.
A major flaw to this plan is that most advisors use mutual funds and stocks in the portfolio and then sell assets to cover your monthly income needs. They may not actually sell monthly but eventually they have to sell investments to provide income. What happens is the market is down when you need money? Your 4% out could easily become 5 or 6% and you would be losing money.
If this happens in the first 5 years of your retirement, you are going to need to reduce the amount of money you get for the year or years that the market is down. You might have to drop back to $60,000 per year income for a few years or even less would be better from a recovery standpoint.
Avoid The Problem
Avoiding the problem is rather easy if you use an immediate annuity for the first 5 years of IRA income and then a fixed indexed annuity that starts income in year five. In the first 5 years your income will be completely taken care of. You will not need to take any withdrawals from your main asset base and your other monies will grow for 5 years untouched.
Using the immediate annuity takes the market out of play completely. If the market goes down, your income will stay the same. If the market goes up, your other investments will grow! It is the best of both worlds.
The second annuity, a fixed indexed annuity, will grow as well over the 5 years. In year 6, you can turn the income option on and create another stream of income. This annuity would provide IRA income for 5-10 years. You only use enough funds from your 401k to provide the exact amount of IRA income that you need. You leave the rest of your money invested in mutual funds, stocks, or other investments.
Create a stable income stream as the first step of your 401k to IRA income plan. That stability will make the transition into retirement more enjoyable and much safer than using all stock investments. Using this plan, you will never be one of those people that have to go back to work years into retirement.
Disclaimer: Always seek individual advice from a licensed professional. This article is for general information purposes only and is not a substitute for personal advice.
Provident Fund Withdrawal - Duties of the Regional PF Commissioner Rules and Regulations For a Self-Directed IRA Why Investing In Silver Is The Way To Go Planning Your Retirement Investment
0 comments:
Post a Comment