1. Review your situation.
- Know how much money you’ve earmarked for retirement, where you keep it, and how much, if any, you want to leave to heirs.
- Estimate monthly and annual expenses and create a retirement budget. Break out expenses into two categories: those that are essential (such as housing and health care) and those that are discretionary (such as travel and entertainment).
Use our .
- Determine how much of your spending needs are covered by non-portfolio income sources (such as Social Security) and how much (if anything) you’ll need to cover with income from your portfolio.
Estimate .
Take action.
The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
Examples provided are for illustrative purposes only and are not intended to be reflective of results you can expect to achieve.
2. Maintain a year of cash.
Set aside an amount equivalent to what you’ll need from your portfolio for at least a year.
This is the money you’ll use—along with your regular sources of income—to cover all expenses throughout the year.
Where you might keep this money:
To avoid having to sell investments in a prolonged bear market, consider keeping one to four years’ worth of portfolio withdrawals in more liquid investments. |
Take action.
The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
Examples provided are for illustrative purposes only and are not intended to be reflective of results you can expect to achieve.
3. Consolidate income in a single account.
- When possible, you may want to deposit your regular sources of income into the account where you keep your year of cash. Or, you might choose a similar type of account where funds can be easily transferred.
- Consolidating and centralizing accounts as much as possible can make it much easier to manage your investments and track your income and spending patterns.
Take action.
The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
Examples provided are for illustrative purposes only and are not intended to be reflective of results you can expect to achieve.
4. Match your investments to your goals and needs.
As you begin to rely on your investments for income, you may feel most comfortable investing heavily in income-generating bonds and CDs.
But to counteract the long-term effects of inflation, you may need to keep a portion of your savings in growth-oriented stocks as well.
Consider a progressively more conservative mix of stock and fixed income investments as you move through retirement and your portfolio has fewer years to fund.
HOW YOU MIGHT ADJUST YOUR PORTFOLIO OVER TIME
Read more about these allocations in “What Role Should Fixed Income Play in Your Retirement Portfolio?”
- For the stock portion of your portfolio, consider focusing more on dividend-paying stocks and stock mutual funds.
- For fixed income, consider bond and CD investments with a mix of maturities that offer predictable income and liquidity.
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Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed income investments are subject to various other risks, including changes in credit quality, market valuations, liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. Investing in dividend stocks carries some risk—the same as with any other type of stock investment. With dividend stocks, you can lose money; for example, share prices can drop (regardless of whether the company pays dividends), companies can reduce or eliminate dividend payments at any time, and inflation can reduce savings.
The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
Examples provided are for illustrative purposes only and are not intended to be reflective of results you can expect to achieve.
5. Cover essentials with predictable income.
Divide your expenses into essential and discretionary categories
(see Fundamental #1), and cover the essentials with predictable income sources. Doing so can reduce the chance of having to pull money out of your portfolio to fund essentials when the market is down. If necessary, you can cut back on discretionary items until market conditions improve.
Take action.
1. Guarantees are subject to the claims-paying ability and financial strength of the issuing insurance companies.
The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
Examples provided are for illustrative purposes only and are not intended to be reflective of results you can expect to achieve.
6. Don’t be afraid to tap into your principal.
Few people have portfolios large enough to allow them to live exclusively off the interest and dividends their investments generate.
Chances are, you’ll need to supplement interest and dividend income with measured withdrawals from principal. And while it’s natural to be concerned about spending your savings too quickly, there are ways to tap your portfolio with a high degree of confidence that your money can last.
Tips to help make your money last 30 years.
- Maintain a diversified portfolio with an asset allocation that reflects your time horizon and risk tolerance (see Fundamental #4).
- Limit your first-year withdrawal to no more than 4% of your portfolio’s value. Review: How much can I safely withdraw each year?
- Adjust subsequent years’ withdrawals by at least the rate of inflation.
APPROACHES TO CONSIDER
Interest and dividends only
Total return
Total return with annuity
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1. Annuities offering guaranteed income include income annuities and variable annuities with a lifetime withdrawal benefit. Annuity income guarantees are subject to the claims-paying ability and financial strength of the issuing insurance companies.
The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
Examples provided are for illustrative purposes only and are not intended to be reflective of results you can expect to achieve.
7. Follow a smart portfolio drawdown strategy.
To supplement your predictable income sources, such as dividend and interest income, Social Security, pension payments, and rental income, consider drawing money from your retirement portfolio in this order:
Draw principal from maturing bonds and CDs. |
Take your required minimum IRA distribution if you’re 70½ or older. |
Sell overweighted assets in your taxable accounts. |
Sell from your tax-advantaged accounts— starting with Traditional IRAs, then Roth IRAs. |
Take action.
This information is not intended to be a substitute for specific individualized tax, legal, or investment planning advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified tax advisor, CPA, financial planner, or investment manager.
The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
Examples provided are for illustrative purposes only and are not intended to be reflective of results you can expect to achieve.
8. Rebalance annually to stay aligned with your goals.
Annual portfolio rebalancing is especially important when you’re retired:
- There’s less time to recover from the potential losses or lackluster returns caused by a portfolio that has strayed from your chosen asset allocation (see Fundamental #4). A portfolio that’s out of balance can leave you with more risk or less growth potential than you want. These risks can be magnified in volatile markets.
- Rebalancing also provides an opportunity to efficiently and objectively add to your annual cash balance by taking proceeds from selling overweighted holdings (see Fundamental #7).
PORTFOLIOS GO OUT OF BALANCE OVER TIME.
Hypothetical portfolio, 2007–2011
In this hypothetical portfolio, the stock allocation increased from 60% to 68%. Because stocks tend to carry higher risk than bonds, increased exposure to stocks could elevate overall portfolio risk. Changes in asset allocation can occur over time for a variety of reasons, including stock market performance, changes in interest rates, and economic cycles.
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Asset allocation strategies do not protect against losses or guarantee sufficient income for retirement. Rebalancing does not protect against losses or guarantee that an investor’s goal will be met.
The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
Examples provided are for illustrative purposes only and are not intended to be reflective of results you can expect to achieve.
9. Stay flexible and re-evaluate as needed.
Things change. Situations change, markets change, priorities change.
- Are you living on less than you originally calculated?
- Did you receive a large lump sum from a pension,
property sale, or inheritance?
- Are you now far enough into your retirement that you
can ratchet down the amount of risk you’re taking in
your portfolio?
- Have a few years of punishing markets made you
rethink your spending or look for additional income?
It’s important to periodically revisit your portfolio asset allocation to stay aligned with your broader investment goals.
Take action.
The information here is for general informational purposes only and should not be considered an individualized recommendation or personalized investment advice. The investment strategies mentioned here may not be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular situation before making any investment decision.
Examples provided are for illustrative purposes only and are not intended to be reflective of results you can expect to achieve.
