As you approach retirement, it is generally recommended that you reposition assets from growth (and in turn, risky) alternatives to safer options like bonds and CDs that can keep your principal safe in any type of stock market environment.
Unfortunately, the “tradeoff” for this safety is a low rate of return – and if you are using these types of assets as generators of retirement income, you may find that it can take a significant amount of money to produce even a small amount of incoming cash flow.
With that in mind, it is important to find the right mix of growth and income-producing assets that will provide you with a livable income stream while both growing and protecting the remainder of your portfolio.
Finding the Appropriate Safe Withdrawal Rate – If That is Even Possible
Safe withdrawal rates are about taking systematic withdrawals from a portfolio. But the question is, how much can a retiree withdraw from their savings without depleting all of their assets while they’re still needed.
In the past, 4% was considered to be a safe rate of withdrawal, given a portfolio that held an approximate 50% / 50% ratio of stocks and bonds. Today, however, with an unpredictable stock market and shaky global economy, many experts believe that a safe withdrawal rate is closer to 2.8%, and in some cases, it can even be as low as just 1.49%.
Based on this, it means that a portfolio of $1 million would only generate a yearly income of less than $15,000 – and this amount doesn’t take into consideration taxes, withdrawal charges, and/or other potential fees. Is this enough for you to live on – both now and in the future?
An Alternative for Generating Retirement Income for Life
While many financial advisors create portfolio drawdown plans for retired clients who are seeking post-employment income, there is an alternative that can allow you to receive an income stream for the remainder of your life – regardless of how long that may be – without concern over depleting your portfolio.
This is the fixed indexed annuity. The fixed indexed annuity can generate a known amount of income for a pre-selected time period, such as ten or twenty years, or even for the remainder of your life.
Without constant concern over whether or not income will continue coming in as long as you need it, you can focus on other more important things such as spending time with your loved ones.
Based on the type of annuity you own, you could also attain a long list of other benefits, too, such as:
- Tax-deferred growth
- Death benefit
- Penalty-free withdrawals for certain health condition diagnoses and/or in case of a long-term care need
- Principal protection in any type of stock market conditions
Do You Have an Ongoing, Reliable Retirement Income in Place?
If you don’t have at least one source of ongoing retirement income in place – one that continues to arrive, regardless of what happens with the stock market or interest rates – it may be time to check out how an annuity can provide you with future cash flow certainty.
But while annuities can offer a number of enticing benefits, not all of these financial vehicles are the same. So, it is recommended that you first discuss your situation, as well as your time frame, objectives, and risk tolerance with a retirement income specialist who can guide you through the process. That’s where an Annuity Gator specialist can help.
At Annuity Gator, we focus on educating consumers and financial professionals on how annuities work, and why they could fit well into your overall plan, both before and after retirement.
So, if you have any questions or would like to set up a time to chat with an income expert, you can reach us by calling (888) 440-2468 or by sending us an email to our secure online contact form. We look forward to assisting you.
Low Bond Yields and Safe Portfolio Withdrawal Rates. By David Blanchett, CFA, CFP; Michael Finke, Ph.D., CFP; and Wade D. Pfau, Ph.D., CFA. Morningstar Investment Management.