Create an Income Stream

Last updated: April 5, 2016

Keeping Yourself Covered Through Retirement

Once you retire, you’ll face a new challenge: transforming your lifetime of savings into a stream of income.

One rule of thumb recommended by some financial professionals is to limit your initial withdrawals to 4% of your nest egg during your first year in retirement, and increase that amount slightly each year to keep pace with inflation.

  • So if you’ve stockpiled $500,000 over your career, you could withdraw $20,000 the first year and slightly more in subsequent years. That should leave enough in your investment portfolio to weather the ups and downs of the market during a retirement that could last 20 years or more.

  • However, even that conservative drawdown strategy can be risky if your initial years in retirement coincide with a bear market, as happened to those who retired during the 2007–09 market meltdown.

Another option is to lock in guaranteed income by using a portion of your assets to buy an immediate annuity.

  • It works like this: You turn over a chunk of cash to an insurance company that promises to send you monthly payments for a set period of time—say, five or ten years—or the rest of your life, no matter how long you live. Because you pool your risk with other annuity holders, you may receive larger monthly payouts than you could prudently afford to withdraw from your savings.

  • The older you are, the bigger your annuity payouts. It may help stretch your retirement savings.

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