Overview

  • Identify your retirement goals
  • Take inventory of your sources of income
  • Choose your withdrawal rate wisely

Funding Your Golden Years

For all investors, there comes a time when the fruits of their labor need to start working for them – that pivotal point when lifelong accumulators need to begin drawing upon their investments to pay themselves back in retirement. Making that emotional and practical shift from an accumulator of assets to a decumulator can be stressful, particularly at a time when markets are volatile and income sources are scarce. Planning ahead can make all the difference.

Step 1: Assess Your Needs

  • Identify your retirement goals. The first step in determining how much income you will need in retirement is to pinpoint your goals.
  • Itemize your anticipated expenses. Once you determine what you want to do in retirement, you can begin estimating the income required to fund those ambitions.
  • Inventory existing income sources. Take stock of the income sources you have now or anticipate having in the future (e.g., full- or part-time employment, Social Security, pensions, annuities).
  • Identify investment assets. These may include company retirement plans, individual retirement accounts (IRAs), taxable investments, deferred annuities, real estate and cash value life insurance.

Step 2: Identify Retirement Income Sources

  • Inventory existing income sources. Take stock of the income sources you have now or anticipate having in the future (e.g., full- or part-time employment, Social Security, pensions, annuities).
  • Identify investment assets. These may include company retirement plans, individual retirement accounts (IRAs), taxable investments, deferred annuities, real estate and cash value life insurance.

Step 3: Mind (and Close) the Gap

For most, their anticipated annual expenses will be higher than their expected annual income. That gap often can be closed through a well-thought-out plan to withdraw from your investment portfolio. In developing a withdrawal plan, keep in mind these important considerations:

  • Choose your rate wisely. A higher annual withdrawal rate can shrink your years of retirement income. Withdrawing 6% instead of 5% annually, assuming a 7% investment return, cuts your portfolio's livelihood from 36 to 25 years.
  • Know that things will change. Your income needs may change over the course of your retirement. A plan that works at age 65 may not work at 85. Plan to revisit your strategy.
  • Mix it up. Combining different withdrawal strategies (e.g., fixed, inflation-adjusted) to target specific needs can make good sense. The assets supporting each income requirement are invested according to that need.
  • Beware dollar cost "ravaging." The concept of dollar cost averaging, which works well when accumulating assets, works in reverse when decumulating. By taking out a fixed dollar amount from your investments on a regular basis, you sell more shares when prices are low and fewer when prices are high. Consider taking income from bond coupons and stock dividends instead of selling shares outright.

Work with your financial professional to establish a retirement income plan suited to your needs.

 

Inflation Erodes Living Standards

This material is provided for educational purposes only and is not intended to constitute “investment advice” or an investment recommendation within the meaning of federal, state, or local law. You are solely responsible for evaluating and acting upon the education and information contained in this material. BlackRock will not be liable for any direct or incidental loss resulting from applying any of the information obtained from these materials or from any other source mentioned. BlackRock does not render any legal, tax or accounting advice and the education and information contained in this material should not be construed as such. Please consult with a qualified professional for these types of advice.

USR-3533