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Safe Withdrawal of Retirement Nest Egg


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Building up a solid nest egg is only half the battle. Equally important, and perhaps even more complicated, is figuring out how to safely withdraw money from those savings. You may also be confronting a savings gap as your retirement draws near, making your drawdown strategy that much more important.

The secret to successful planning is to create a model with multiple strategies that can be activated over time in order to maximize income, reduce risk, minimize taxes, offset the savings of inflation and create a “shock absorber” for unforeseen events like negative markets, loss of principal, medical expenses and long-term illnesses.

While uncertainties are logically unplanned, one thing they always are is inevitable.  When you retire, you don’t have to worry about a job loss anymore but cars and roofs can still need repair in retirement. Be aware that accidents, major home or car repairs and other uncertainties will still loom on the horizon once you retire.  Things will crop up. When they do, it’s best to be prepared.  Remember that emergency funds aren’t just for the young.

When you are retired, you don’t want to have to sell investments at a loss or have to go into debt to pay for them.  The stock and bond market go through cycles of times when prices rise and periods where prices decline. Knowing this, one might assume the average investor is taking steps to become safer with their investments now that the equity market is at or close to an all time high.

Sadly, it is a world where the two primary asset classes stateside — U.S. stocks and U.S. bonds — are extremely overvalued. And yet, the choices of how to manage the overvaluation in one’s portfolio are not particularly attractive either. Since there are no meaningful risk-free rates of return in a zero percent interest rate environment, investors have been choosing between risky and riskier alternatives.

Yet, in our experience lately, some investors are instead falling into the same pattern of the past, and instead increasing their risk to try and earn more returns like the markets.  An investor who wants “market” returns must also be willing to accept “market” losses.

When it comes to paying your bills in retirement, it doesn’t really matter if you use an “income” dollar paid via dividends or interest or whether you use a “capital gains” dollar from the sale of stock. At the end of the day, a dollar is a dollar.

Planning your retirement is no walk in the park. One of the most common questions from people about to retire is how to turn their retirement savings into retirement income. After all, for most of our life, retirement planning is about accumulating a nest egg. What to do with that nest egg when we actually retire is a whole different ball game.

Make sure your income lasts as long as you do.  Take your expenses per year and then subtract that from your projected annual Social Security income and any pension income you expect to receive, and then divide the result by your remaining retirement savings.

If the number is above 4%, you face a considerable risk of outliving your money so you may want to consider purchasing an income annuity. With an income annuity, you pay a lump sum to an insurance company in exchange for a payment that lasts as long as you live.

It’s like buying a traditional, old-fashioned pension plan. However, you generally give up the ability to access your lump sum (that’s why you need emergency savings) or pass it on to heirs (although you can get one that pays for a minimum number of years or add a survivor who will get all or a portion of your payments until they pass away).

As a general rule, use income dollars for personal expenses to avoid selling shares. In a prolonged bear market, selling your shares can be akin to a farmer eating his seed capital. Shares sold at depressed prices are shares that won’t grow in value when the market turns around.

I want you to imagine the PERFECT place to put your Retirement Funds.  First, you would want something that offered you a good rate of return.  Second, you would want something that would never lose money. Third, you would want something that could provide you with income for your retirement.

An annuity in its most simple form is a contract between you and an insurance company.  The contract is the yen, to Life Insurance’s Yang.  Where Life Insurance was designed to protect you from living to little, the annuity was designed to protect you from living too long.

No two annuities are the same. They come with different features and benefits, which only YOU can decide are either right for you or not. A partial listing would include: individual annuities, immediate annuities, deferred annuities, single premium or installment premiums, fixed annuities and variable annuities.   (We do not recommend Variable Annuities as the fees are way too high.)

The list goes on. In this case, variety is a good thing for you as the consumer because you can fine-tune your annuity to get it just the way you want.

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Saturday, February 21st, 2015 Wealth Distribution, Wealth Management

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