We’ve spent our whole lives working, spending the money we earn and hopefully saving a little too.
When we retire, everything we have ever experienced about managing our own finances gets turned upside down. We no longer earn as much or any money from work.
We have to figure out how to make do with and maximize what we already have. Instead of saving as much as possible, the new objective is retirement income planning — creating predictable retirement income out of what we have.
It is like we have been playing one game for the last 40 or 50 years and when we retire, ALL the rules change.
To help you learn how to play this new retirement income planning game, we polled retirement experts. Here are 12 practical strategies, rules and tips…
1. Retirement Income Planning: Create Buckets
One of the most popular strategies for retirement income planning is to formulate a bucket approach. A bucket approach establishes different “buckets” or accounts for different types of spending.
“We recommend the “bucket approach,” says Kathleen Fish, founder of Fish and Associates, a financial services firm based in Memphis, Tennessee. “There, we look at all income sources and put our clients’ investments into buckets representing different risk levels.”
- Two to five years of income would be in cash or cash equivalents.
- While a second bucket might be 20-50 percent equity and be in an income bucket for income in years five through ten.
- Bucket three can be more heavily invested in stocks as the retiree won’t have to touch that bucket for at least 10 years.
Fish continues, “This strategy helps to keep people invested, because they can see their required income is set aside and is not impacted by the fluctuations in the stock market.”