How to Have a Long and Happy Retirement

Taking the plunge to leave the workplace and enter retirement can be exciting, but this new phase can also be a little scary. Seniors who have been planning for decades for this moment may think the time has come to relax and enjoy life, but they still need to make careful decisions about their money.

Not only do retirees have to decide where to invest their savings, they also need to investigate such options as paying off their home mortgages completely or consider comparing lenders of reverse mortgages. A reverse mortgage could provide retirees with potential cash flow benefits by offering flexibility to pay for unexpected expenses that may arise during retirement.

Three Methods of Retirement Income Distribution

Retirees also need to decide which method of retirement income distribution is best suited to their financial needs. An article from Investopedia.com compared the impact of the three main methods seniors choose to have their investment income distributed.

1. Interest-only: This strategy involves investing in a portfolio of fixed-income securities with an average yield of 4%. The interest from the fixed-income is used as retirement income. This method provides the greatest predictability of income, but it works best when inflation is not an issue.
2. Systematic Withdrawal Plan: Seniors using this strategy could invest in several stock, bond and money market mutual funds and then withdraw money on a periodic basis. The plan offers more flexibility than an interest-only strategy and has the possibility of providing extra growth. However, it is less predictable than an interest-only method.
3. Spend Down/Grow Back: In this scenario, retirees divide their money into two separate components. Over the course of a predetermined time period, one portion of the funds is depleted as income, while the other funds are invested for growth.

Work with a Retirement Income Planning Specialist

Choosing an appropriate method depends on the amount of savings retirees have, their income needs and their interest in growing their portfolio throughout retirement. Seniors should work with a retirement income planning specialist to ensure that they make optimal financial decisions for their own circumstances, which includes choosing a method of retirement income distribution that is in line with their income needs and retirement goals.