Know Your Income Options in Retirement
Many retirees want a steady income relatively immune to market turn downs but also to not outlive their income. At age 65, you have some 17 years of life expectancy and with 50% living longer. Inflation has historically averaged 3% which cuts the value of a dollar by a 25% in 10 years.
To address market, longevity and inflation concerns, take a conservative approach to retirement investing and withdraw retirement income only to the extent that your portfolio's real value keeps up with inflation. In other words, if your portfolio gains 8%, set aside 3% to cover inflation leaving you with 5% to withdraw to cover living expenses.
To strategize how you'll produce your retirement income, realize the array of income options you're presented with in retirement. Then choose which combination of income options suits you according to your aversion to risk and your remaining life expectancy. Refer to the table for your retirement options and our comments.
Retirement Income Options to Choose From
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| Retirement income Source | Option | Strategy to Enhance Income | Comment |
| Social security income: | Fixed | delay for higher benefits | Indexed for inflation |
| Pension income: | Fixed | not much option here | Possibly Indexed |
Your investment income: 
|
Option A | Systematic withdrawal of equity/income portfolio | Withdraw to maintain real value, vulnerable to market downturn |
| Option B | Withdrawal of earnings of Income Portfolio | Withdraw earnings to maintain value, less vulnerable to market | |
| Option C | Purchase Immediate Annuity | Fixed ( not inflation indexed)
Guaranteed for life The later you begin, the more income it generates |
|
| Work full or part-time: | Your choice | Work for a while longer | Save more, or just let investments grow |
| Your Home/second home: | Back up
source |
Take reverse mortgage of home; rent or sell second home for more income | Holding off to later give higher reverse mortgage income |
| Overall Strategy: | Do combination of above | Choose combo according to your aversion to risk | |
Social Security benefits and a company pension income are the two mainstays of retirement income for many people. If you have both then you assured of some income you can count on forever (we make this statement for those already retired as Social Security cannot last in its current form for those not yet retired). Social Security has a cost-of-living-adjustment and some pensions do also.
For supplemental retirement income, you'll have to manage your invested retirement savings to generate it and possibly generate earnings. How you choose to invest this money and how much you withdraw for income will determine how long your money will last.
To maintain your portfolio's real value and an income for life, you must minimize your retirement withdrawals. Higher withdrawals generally require higher investment growth. And higher growth comes at higher risk – that's risk of market downturn.
The above table shows three main options for generating portfolio income. Option A refers to taking systematic withdrawals of a portfolio roughly split between equity (stock) and income (bond) based investments. The equity can help your portfolio growth rate to increase your withdrawal rate. But the equity portion can leave you vulnerable to a significant market downturn.
Option B uses a more conservative approach through an all-bond portfolio. Overall earnings may be less so your withdrawals must be less. And that should be less than interest earnings since you must reinvest some of the earnings to maintain the real value of your portfolio.
Option C used an immediate annuity to guarantee you an income for life. However, a fixed annuity won't adjust your income for inflation. So, you should use some other part of your portfolio for increasing value.
If your income is still too little, you can continue working – perhaps only part time. Saving more money can only help you out later. Delays in tapping retirement savings can increase what you can get because there's more of it, and you're life expectancy shortens with time.
Both Social Security benefits increase significantly for delaying to age 70 and that immediate annuity will give higher monthly payments for the same investment as you defer your annuity starting date.
Center for Disease Control at http://www.cdc.gov/nchs/data/hus/hus07.pdf#027 (note: life expectancy is age at which 50% have died, so 50% will live longer)
Average Annual Inflation by Decade Inflationdata.com at http://inflationdata.com/Inflation/images/charts/Articles/Decade_inflation_chart.htm (note: 3% inflation mathematically implies purchasing power decreases by 25% over 10 years, by 50% in 23 years, etc.)
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I've really liked your retirement income options to choose from table.
Great post and really appreciate yoiur efforts in providing such valuable information on retirement income options! I personally feel that having an online consulting service for your area of expertise is a great option.
Thanks for sharing such a wonderful article on retirement income options it is indeed going to be useful for many people like me. I recently retired from my jobs and already started with affiliate marketing with other people's products. It is indeed very interesting work which i can do easily sitting at home.
In my retirement fund I have choices on which indexes to put money in...please help?
good article. The retirement income options are good
Retirement planning is tough. It is hard to plan when you aren't even sure that you can stick to your plan. Does your money manager have enough training? Is he going to stick your money in a dog of a stock? If he is smart enough or well enough trained and he places your money in a dog, all these careful calculations go out the window.
It is indeed a great article. To plan and invest properly after the retirement is really not that easy. Thanks for providing such a detailed inormation. Great post indeed!
Interesting post and very informative as well. It is a fact that not all people in their 50's and 60's are prepared financially for their retirement years.
Great post! I liked your retirement income options to given in this article. When planning your retirement, today more than ever, you must be very creative and think outside of the normal realm when securing your retirement funds.
Retirement planning is a very important thing. You need to have a monthly fixed income- but you can also trade Forex to increase this income. Manage your funds smartly anyway.
Good article. I would like to add that one of the good options of retirement income planning is to give consideration to various annuity plans that are getting proved for being very useful for this particular financial purpose.
Check out How To Make Sure Your Money Lasts In Retirement for great info about making your money last in retirement.
Nice post! I do agree that retirement planning should be done very smartly since it is a very a very important thing. After retirement you need to find out smart ways to have a fixed income on monthly basis
1 year before retirement and I have started Internet Marketing with some success. Should be able to get a moderate income by the time a year is up and then it is just a bit of income fun working as I choose from home ... with a bit of luck.
Retirement planning is a such an essential thing. It is essential to take a conservative approach to investing and withdraw income only to the extent that your portfolio's real value keeps up with inflation.
Nice post.Thanks for sharing useful information.I think Increasing your retirement income is a top priority for people planning to retire and current retirees.
Thanks for the post! It's nice to be able to go through the different options. Sometimes it is easier to have someone to walk you through it in person though. There are retirement planners out there for those who need a one-on-one approach.