Transition to Retirement Income

While entering retirement marks an exciting milestone, it’s hardly the finish line. Rather, it’s the start of a whole new chapter where you have increased freedom to decide how you’ll spend your time, who you’ll spend it with, and where. However, transitioning to retirement requires a shift in mindset. After decades of saving and investing for retirement, suddenly your income is no longer derived from paid work but from sources such as Social Security, retirement plan investments, personal savings, and a pension, if you have one.

You can also expect some new financial challenges as you move from a lifetime of saving to spending in retirement, such as managing Medicare and Social Security benefits, drawing down on assets in a safe and tax-efficient manner, and taking required minimum distributions from tax-advantaged retirement accounts. You may also need to contend with factors you can’t control, such as market volatility, inflation, and unplanned expenses. These can make managing your finances in retirement more complex. It’s important to put a strategy in place to maintain your lifestyle and accomplish your goals for another 20, 30, or more years.

For retirees seeking income, stability, and growth, an approach that segments assets into different “buckets” can be helpful for envisioning how they may be able to accomplish multiple life and legacy goals. The bucket approach divides assets into different segments, based on their purpose and when they will be needed.

For example, the first bucket represents short-term goals, which are generally two years or less. That money may be in cash or invested in very short-term fixed-income investments for liquidity purposes. This bucket is also used to supplement what you receive from sources like Social Security or a pension to pay for essential expenses, such as food, clothing, housing, transportation, and healthcare.

The second bucket serves as a bridge between your long-term and short-term buckets. A balanced approach to asset allocation helps to generate enough growth to periodically replenish the short-term cash bucket, allowing the third bucket – your long-term assets – to grow untouched.

The third bucket has greater exposure to stocks to potentially allow for more growth. Since these assets are invested for the long term, and are not needed to fulfill short-term goals, investors can be less concerned about the impact of day-to-day and short-term market fluctuations on this segment.

Regardless of what you have planned for retirement, a strategy that’s aligned with your lifestyle needs, goals, timeframe, and risk tolerance can provide the confidence that you’re on track toward living the life you desire.

If you would like to learn more about strategies to generate income in retirement, call the office to schedule a time to talk or visit our calendar at www.calendly.com/kfn to schedule a meeting.