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Strategies for Retirement Income

Retirement means freedom from the workplace, but it also means living on a fixed income for an uncertain amount of time. You don't want to run out of money prematurely, so you need a plan to make your nest egg last as long as possible.

Everyone's situation is different, so retirement income strategies will vary. Here are common strategies retirees use to get the most out of their nest eggs.

1. Social Security

Social Security can form the basis of any retirement income plan, and while it was never intended as a complete solution for retirement income, Social Security does offer a lot. One huge benefit of the program is that by the time you retire you’ve already made your contributions to the program, so there’s nothing left for you to do. You don’t have to worry about a further investment or otherwise setting aside money from a paycheck.

2. Consider Some Guaranteed Income

Back in the day, people could retire well on pensions and Social Security. Both were expected to be nice income streams paying out for the rest of your life. Today, it is beneficial to have at least some guaranteed income in retirement. Ideally, you would have enough to cover your necessities, like housing and food.

Retirement Accounts

Take stock of how much savings you have stashed away in an IRA or 401(k) retirement plan. Whatever the amount, you can safely withdraw somewhere between 3 and 4 percent per year to support your retirement lifestyle. Typically, you can start withdrawals, without penalty, at age 59 1/2, and for many plans you must start withdrawals by age 70 1/2 or face penalties.

A Focus on Yield

Along with some stock investments, a significant portion of your principal will likely be invested in fixed-income investments to provide a consistent stream of income. Depending on your needs, such investments may include high-quality corporate and government bonds, tax-exempt bonds, and high-yield "junk" bonds. How much risk (maturity and credit risk) you need to take in these investments depends in part on how much income you need. For example, if you can get by with a 5% annual return, you might be comfortable with high-quality, medium-term, fixed-income investments.

Points to Remember

1. Inflation continues to eat away at the value of your savings. Stocks offer the best potential for fighting inflation over the long term.

2. Only a portion of your money is invested for the short term. Today's longer life expectancies mean a component of your portfolio may be invested for 20 or more years.

3. Income investments include bonds and dividend-paying stocks.

4. You may have to elect payment options for your company pension and retirement plans. You may also elect to begin withdrawals from your IRAs. Consult your financial advisor.