Retirement Income Rules: Easy Isn't Always Effective
No Cookie Cutter Approach: Financial planning firms, such as OSBORN Wealth Management, prefer using an approach specific to a client’s needs and risk tolerance. There are often many moving pieces to retirement income planning, and flexibility is a key component, often overlooked. But to get you thinking of some possibilities, here are two basic building blocks.
Market Based Planning: A 4-5% rate of withdrawal, in the first year of retirement, may be a good start point, but subsequent withdrawals should be based on anticipated life expectancy and investment performance. The retiree of 1981 fame, who retired with $100,000 and held fast to the 4% rule, saw her $ 4,000 withdrawal grow to $ 5,700 after 10 years. A nice increase, but additional gains could have been safely enjoyed. But what goes up, also goes down - especially in a market void of guarantees. An income plan, such as this, would need to acknowledge how market movements might affect income. And, it would need to incorporate areas of guaranteed income from sources such as Social Security, pensions or annuities.
Dividend Growth: Continuing our premise of a 4% rule, it is possible to create a portfolio of high quality dividend growth stocks which provide an initial cash flow nearing 4%, and historic increases with inflation. It’s important to understand that there are two distinct aspects of stock investing; dividend income and price appreciation. Longterm dividend payment histories are created by a company’s ability to be profitable, and its policy to distribute profits to shareholders. In essence, the company is working for you. Creating a portfolio of Dividend Achievers and Divident Aristocrats, provides access to companies with long histories of paying and increasing dividend payment to shares holders.
Set it and Forget it: Few retirees have amassed amounts of wealth sufficient to cruise through retirement on auto-pilot -- economies and inflation (not to mention life, in general) are too ever changing. And, leaving behind regular paychecks for 30 years of retirement can be unsettling. And, it should be. Who can look back on any 30 year period and claim it unfolded exactly as anticipated? So, why should a 30-year retirement be any different? Retirees deserve more than a simple online calculator or a product based sales solution. Creating a retirement income plan just isn't that simple.