I talk to a lot of investors, and many of them are worried about retirement. They wonder what it will be like to stop getting a paycheck and whether their savings will last long enough.
Retirement used to be pretty straightforward: You stopped working and started getting a pension. Prior to the financial crisis, as pensions became more rare, you could still buy Treasury securities that generated yields of 4 to 5 percent--enough to be comfortable.
But since the financial crisis, you often have to take on a lot more risk to generate that sort of yield. And with this low-interest-rate environment looking like the new normal, income from interest and dividends alone just isn't enough for most retirees.
One solution is to expand your idea of where you can look for income from your portfolio. Think about harvesting capital gains along with interest and dividends, and even spending down some of your principal.
I know that can sound scary. But that's because investors often haven't had an easy way to understand how long their money could last. And research shows that many retirees actually spend far less than they could.
So let's say you've worked hard all your life and saved $1 million for retirement and you need your investments to generate $40,000 a year. You can do that by selling some stocks and collecting dividends and interest. Some years, you may have to dip into the principal, but other years the portfolio generates much more than that.
What I tell investors is: focus on what you can control. You can't time the markets or predict interest rates, but you can take steps to save money on taxes, keep costs down, diversify your portfolio, and minimize the number of decisions you have to make.
A new feature within Schwab Intelligent Portfolios can do all of this for you AND projects how much you can withdraw to help make your money last. It's called Schwab Intelligent Income.
Retirement should be a time we look forward to, but unfortunately for many people it's stressful. At Schwab, we're always trying to make retirement a little simpler and a little easier. A little more like we all want it to be.