Retirement Income Planning

When choosing from among asset allocation models to support your retirement income, you should consider two main goals: stability to meet minimum income requirements, and growth to combat inflation.

Before you decide on an allocation for a stable income, you must first create a budget which takes into account your minimum income needs. Then, you should consider a method of income and an investment portfolio.

Two primary methods for generating income include a self-managed income and an annuity income. Self-managed income is a process whereby you withdraw funds from an invested asset on a monthly or annual schedule. The goal of a retirement income is that it should survive for as long as you need it, which usually means you should plan on the income lasting well past your life expectancy (since life expectancies are averaged, half of us will live beyond them!).

If you select a self-managed withdrawal, methods that you can use to maintain its survivability include using a conservative asset allocation such as owning interest-bearing instruments outright (i.e. bonds). This is not to be confused with owning bonds within a mutual fund or other wrapper which is carried at market value. This sort of investment will go up and down with the interest rate market. In fact, it will move in the opposite direction of interest rates. Thus, just when you need your income to rise to combat rising interest rates, your investment will be shrinking! Contrast this with holding bonds outright. You are guaranteed to receive payments based on the interest rate that the bond was issued with. The bond will mature in a set number of years, and then you will get your original investment back.

Other safe investments include certificates of deposit, money market indstruments, bank accounts, and traditional insurance accounts. Additional methods of income include a modified self-managed withdrawal that features a cash transfer account or asset cost averaging. Life annuities should also be considered.