Retirement Income Approaches
Consider these common approaches for generating retirement income to help you decide what's best for your situation.
Use this chart to consider the pros and cons of three common strategies for generating retirement income.
|Income Approach||Consider If||Benefits||Risks||Savings Needed for 30-Year Retirement|
|Interest and dividends only||
You have a sizeable portfolio and are extremely uncomfortable with dipping into your principal.
Easy to understand and implement.
Helps preserve your savings for your heirs.
Requires a larger portfolio.
Income is more susceptible to rate fluctuations.
Little protection from inflation.
|30+ times the first-year withdrawal.1
What if you don't have this?
You need both investment income and withdrawals from principal to cover your retirement expenses.
Requires a smaller portfolio than the "interest and dividends only" approach.
You could potentially outlive your savings.
|25 times the first-year withdrawal.2
What if you don't have this?
|Total return with annuity||
You want guaranteed income from a portion of your savings and are willing to give up some control of the assets you invest in an annuity.
A guaranteed source of income regardless of market movements.
Less risk of outliving income.
Inflation can erode the buying power of fixed payments unless the annuity includes inflation protection.
Assets may not be available for big emergency expenses.
May be slightly less than 25 times the first-year withdrawal.3What if you don't have this?
Annuity income guarantees are subject to the claims-paying ability and financial strength of the issuing insurance company.
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1. Source: “What Role Should Fixed Income Play in Your Retirement Portfolio?” by Rob Williams, February 5, 2010.
2. Source: “Is the 4% Rule Still Appropriate?” By Rob Williams, August 5, 2014.
3. Sources: “Write Your Own Retirement Check,” by Rande Spiegelman, updated March 4, 2011, and “Can You Still Retire?” by Rande Spiegelman, October 9, 2008.
Interest and dividend income is subject to fluctuation and is not guaranteed. Principal is subject to market devaluation, and your investments could lose money.
Income from investments, withdrawals from investment accounts, and proceeds from investment sales may be taxable. You may want to consult with a tax advisor.
The information provided 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 (or informational) purposes only and are not intended to be reflective of results you can expect to achieve.
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