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Retirement Income Fundamentals

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Call us at 888-213-4695 or visit your local branch.

When it's time to turn savings into income, start with a big-picture overview on generating retirement income that lasts. Whether you plan to build your own retirement portfolio or have it professionally managed, you can count on us to help you succeed.

  • 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 predictable income sources (such as Social Security) and how much (if anything) you’ll need to cover from your retirement portfolio.
Expenses - Income = What your portfolio must provide
Estimated expenses Predictable income sources What your portfolio must provide
Estimated expenses Predictable income sources What your portfolio must provide

What you can do now:

Set aside an amount equivalent to what you'll need from your retirement portfolio for at least a year.

This is the money you'll use—along with your sources of predictable income—to cover all expenses throughout the year.

Where you might keep this money:

  • Checking or savings accounts
  • Money market accounts
  • —depending on rates and when you might need the funds

Tip: Consider a short-term reserve for rainy days.

Sometimes the unexpected happens, and the year of cash you’ve set aside for living expenses may not be enough to cover a needed purchase or emergency expense. That's why we suggest you create a short-term reserve in the cash allocation portion of your retirement portfolio, enough to cover up to four years of your retirement portfolio withdrawals. By investing this cash in liquid investments like money market funds and short-term CDs, your cash reserve will be ready if you need it, and you’ll avoid the possibility of having to sell your investments in a bear market.

What you can do now:

  • Consolidating and centralizing accounts as much as possible can make it much easier to manage your investments and track your income and spending patterns.
  • When possible, you may want to deposit your predictable 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 accounts can make it easier to manage investments. Dividends & interest Single Account Social Security Mutual fund distributions Rental income Pension

What you can do now:

As you begin to rely on your retirement portfolio 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 stock investments—like mutual funds, ETFs, and equities.

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

For Age 60-69, 60% stocks and 40% fixed income. 40% fixed income and cash investments 60 % stocks

Age 60-69

For Age 70-79, 40% stocks and 60% fixed income. 60% fixed income and cash investments 40 % stocks

Age 70-79

For Age 80 and over, 20% stocks and 80% fixed income. 80 % fixed income and cash investments 20 % stocks

Age 80+

  • For the stock portion of your retirement 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.

Divide your expenses into essential and discretionary categories (see Fundamental #1), and cover the essentials with predictable sources—like Social Security, annuity, and/or pension payments. Doing so can reduce the possibility of having to withdraw money from your retirement portfolio to fund essentials when the market is down. If necessary, you can cut back on discretionary items until market conditions improve.

Annuity guarantees are subject to the claims-paying ability and financial strength of the issuing insurance company.

What you can do now:

Few people have retirement 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 retirement 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, if possible.
  • Adjust subsequent years’ withdrawals by at least the rate of inflation.
Interest and dividends
Interest and dividends
Withdrawals from principal
Interest and dividends
Withdrawals from principal
Annuity income

Annuity income guarantees are subject to the claims-paying ability and financial strength of the issuing insurance companies.

To supplement your predictable income sources, such as interest income, Social Security, pension payments, and rental income, consider drawing money from your retirement portfolio in this order:

Take your required minimum distribution (RMD) from your Traditional IRA if you're 70½ or older.

Draw principal from maturing bonds and CDs.

Sell overweighted assets in your taxable accounts.

Sell from your tax-advantaged accounts—starting with Traditional IRAs, then Roth IRAs.

What you can do now:

Annual retirement 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, 2010–2014

60% Stocks | 40% Bonds 60 % stocks 40 % bonds


4 years later

70% Stocks | 30% Bonds 70 % stocks 30 % bonds


In this hypothetical retirement portfolio, the stock allocation increased from 60% to 70%. 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.

What you can do now:

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?
Situations, markets, and priorities can change. Situations Markets Priorities

It's important to periodically revisit your retirement portfolio asset allocation to stay aligned with your investment goals.

What you can do now:

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Investors should consider carefully information contained in the prospectus, including investment objectives, risks, charges, and expenses. You can request a prospectus by calling 800-435-4000. Please read the prospectus carefully before investing.

Investment value will fluctuate, and shares, when redeemed, may be worth more or less than their original cost.

Money market funds are neither insured nor guaranteed by the Federal Deposit Insurance Corporation or any other government agency. Although the fund seeks to preserve the value of your investment at $1.00 per share, it is possible to lose money by investing in the fund.