Ideas to help generate retirement income

One of the most daunting transitions to make as an investor is when regular paychecks stop coming in and retirement portfolios become the primary source of income after all those years of saving.

The goal, of course, is to make your hard-earned savings last throughout your lifetime, but to do that, it's essential to have a plan in place for generating income through periodic withdrawals from existing retirement plans. With that in mind, here are a few suggestions to consider:

Withdraw a fixed dollar amount annually

This approach is fairly simple to implement and offers predictability in budgeting. But it does not consider inflation, nor does it account for your changing needs in retirement.

Withdraw a fixed percentage annually

Keep in mind the dollar amount withdrawn will change based on your portfolio's value at a given time. That means your income will vary year to year.

Take inflation-adjusted withdrawals

Withdraw an appropriate amount in the first year, and then increase the dollar amount by the rate of inflation in subsequent years. This maintains your standard of living, but requires annual calculation and a watchful eye to ensure you don't deplete your savings.

Withdraw investment earnings

Taking only the income (e.g., dividends, interest) created by the underlying investments in your portfolio can help keep your principal intact and can provide the potential for your investments to grow while also seeking to generate income. But your income will vary year to year, and withdrawals won't necessarily keep up with inflation.

Be Flexible

Rather than using a single withdrawal strategy to fund all your retirement expenses, you might consider combining strategies to target specific needs. For example, you may opt to use an inflation-adjusted withdrawal strategy to cover essential expenses (utilities, food) and fixed-percentage withdrawals or withdrawals of investment earnings for your discretionary expenses (travel, entertainment). Ultimately, it's a decision worth making in consultation with a financial professional.