Income for a Comfortable Retirement

A comfortable retirement isn’t just your favorite chair close to the fire and your slippers near by. A comfortable retirement means you have sufficient funds to pay your living expenses and still do the things you’ve dreamed of doing. Financial security and independence are key when it comes to a happy retirement. That’s why having a plan for generating income can help you work toward achieving your goal.

Count Your Income Sources

You’ve probably been saving for retirement for a long time, so you may have money in a variety of savings vehicles — a 401(k) plan, traditional and/or Roth individual retirement account and other investments. Maybe you have a pension. And you’ll probably receive Social Security benefits. Creating an income stream from these sources will help cover your expenses during a retirement that could last 20 or 30 years or longer.

The Three-basket Plan

Dividing your savings into three different “baskets” based on how soon you’ll need the money may prevent you from having to sell investments when the markets are down. Basket number one includes the cash you’ll need in the next year or so. Look for a high-yield savings vehicle so you can access the money without penalty.

The second basket should hold fixed-income investments that offer some growth potential. Use these funds to replenish the first basket as you spend down your cash.

The third basket can hold investments with the potential for growth, such as equities, that you won’t need for several years. You may want to sell investments periodically to add to your second basket.

Delay Starting Social Security

You can maximize the amount you receive from Social Security each month by waiting beyond your full retirement age to claim benefits. Your benefit amount increases for every year that you don’t collect benefits, up to age 70.

Remember that you have to pay income tax on withdrawals from any tax-deferred investments—such as traditional IRAs, 401(k)s, 403(b)s and tax-deferred annuities—in the year you take the money. Of course, this will reduce the amount you have to spend.