A lot of work can go into planning for and transitioning to retirement. And getting to your golden years only to realize that you’re mismanaging your finances and available income streams can ruin what could prove to be some of your best years.
Developing a drawdown plan can help keep from getting your income streams mixed, while maximizing their potential. And dividing this plan into three categories could help make the drawdown process simpler and more straight forward.
Riskier assets and income streams
Riskier assets and income streams can sometimes make or break a retirement. This is why some financial advisors recommend reducing this portion of a portfolio as the date for retirement nears.
While the stock market may seem like a great wealth creator when times are good, during downturns it can quickly diminish wealth as well. And while stock-based investments can be a great income stream during retirement, they don’t necessarily have to be extremely risky to be rewarding. And just like a retirement plan, stock-based investments can also be broken down into risky, secure, and guaranteed income-earning streams. Creating a balance that leaves the potential for stock investments to grow while at the same time minimizing potential loss through a properly diversified retirement plan can help give even a more unsecured income stream from the stock market greater stability.
Secure forms of income
Secure forms of income – or potential income – can come in a variety of forms. From money market funds, home equity, bonds, or even stock-based income funds, to physical assets like coins, antiques or collectibles, these items might not be guaranteed to grow in value or even to retain their initial value; however, they may be more secure than riskier assets and income streams with a certain level of protection built into them.
It’s not likely that a home that is paid off and that you’re planning to take a reserve mortgage out upon will suddenly be worth absolutely nothing. Similarly, that money market fund, or collection of gold or silver coins isn’t likely to be worthless no matter how bad things get. These more secure assets and forms of income can make for a good balance between risky and guaranteed income streams and help balance uncertainty about the future.
Guaranteed income streams
Then there are those guaranteed income streams. And while nothing in life may fully be guaranteed, there are certain income streams that come about as close as we can get.
These income streams may include Social Security, pension plans, checking and savings accounts, certificates of deposit, savings bonds, and even certain retirement plans that have guaranteed portions as part of their portfolio.
By breaking assets and potential income streams down into these three categories you may put some additional clarity to where retirement income is deriving, where to pull income from and in what amounts, and how secure that income may be over time.
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The author is not a licensed financial professional. This article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.