Submitted by The Avenue Wealth Management Group. Reprinted with Permission
There are many factors to consider when it comes to planning for a secure and fulfilling retirement–you’ll have to think about everything from how you’ll fill your time to where you’ll live and how you’ll pay for it all. One solution is retirement income diversification.
Similar to asset allocation among your investments, the approach advocates establishing independent (i.e, non-correlated) streams of income that could provide needed cash flow under a variety of circumstances. The idea is to put your eggs in several baskets, since none of us know what the markets will do over 20 to 30 years of retirement, much less how long we’ll need our money to last.
While it may be nearly impossible to account for all the variables, we are able to establish different sources of income in the years leading up to retirement and then test them against various scenarios to determine if our planned income will hold up against economic challenges.
Start with the core sources
First, let’s start with your streams of reliable income that will serve as your main source of cash flow. This could be one or any combination of sources, including Social Security benefits, pension payments, employment income (most likely part-time work since you’ll be retired) or annuity payouts. The key is identifying the sources of consistent income that you can use to cover your necessary expenses, such as mortgage payments, groceries, utilities, insurance, transportation and healthcare.
Of course, what’s essential will be different for every retiree. For example, you may view donating to charity as a necessity, while someone else insists on including his/her tennis club membership among needs because it provides an avenue physical and mental health through social interaction and exercise. The point is, decide what your retirement needs truly are and ensure you have a variety of stable income sources to meet those needs.
Then consider how those more reliable income sources will perform in “normal” markets, recessions or periods of high inflation. For example, Social Security, which generally includes a cost of living increase each year, should hold steady in different economic environments. Its resilience is another reason why it pays to maximize this income stream if you can. Smart claiming strategies allow you and your spouse to maximize your overall household benefits, so work together with your advisor to determine when and how to start receiving benefits.
Income from a portfolio of investment-grade bonds may be able to provide predictable cash flow as well, with municipals delivering the added benefit of exemption from income tax. Pensions and annuities do well too, with the exception of inflationary years because the payouts may not be adjusted accordingly. Your advisor can help you analyze each one and run hypotheticals to help you gain confidence in their ability to withstand a long haul.
Next column, we will share how to graft on your reserves and blend everything together so that your retirement is safe and filled with whatever you want to do…not what you have to do.
Investing involves risk including the possible loss of principal. past performance may not be indicative of future results. Diversification does not guarantee a profit nor protect against loss. The market value of fixed income securities may be affected by several risks including interest rate risk, default or credit risk, and liquidity risk. Interest on municipal bonds is not subject to the federal income tax but may be subject to the federal alternative minimum tax, and state or local taxes. Profits and losses on federally tax-exempt bonds may be subject to capital gains tax treatment. Dividends are not guaranteed and may fluctuate.
Raymond James Financial Services, Inc. Member FINRA/SIPC. The Avenue Wealth Management Group
An Independent Firm 1360 Caduceus Way Building 800 Suite 101 Watkinsville, GA 30677
Securities offered through Raymond James Financial Services, Inc. Member FINRA/SIPC Material
created by Raymond James for use by its advisors.
Formerly known as TSD Capital Group, The Avenue Wealth Management Group is an independent firm of Raymond James Financial Services. Our diverse team offers a wide range of experience and expertise; specializing in wealth transfer, wealth accumulation, asset protection and retirement planning. The combination of our strengths and individual areas of focus enables us to help each and every client we serve to be prepared for each particular avenue of wealth management. The Avenue Wealth Management Group is independent of Raymond James Financial Services. Securities offered through Raymond James Financial Services, Inc., member FINRA/SIPC