1. Identify the source(s) of your retirement paycheck. You will most likely
receive income from several sources including Social Security, a pension or 401(k), an IRA, a taxable investment account or annuity. 2. Carefully time your first retirement paycheck. It may result in a larger
paycheck. And, you may be able to retire sooner than you think. For example, the recent decline in interest rates has triggered a significant increase in the lump sum retirement benefit for many pension and defined benefit plan participants. 3. Estimate the size of retirement paycheck you will need. It is important
to do some cash-flow projections. These will allow you to match the size of your retirement paycheck to your expenses. It also helps determine the frequency with which you should take your retirement paycheck, such as monthly or quarterly. 4. Pinpoint how much you can afford to pay yourself. The goal here is to
pace your paychecks to avoid running short of money during retirement. Experts do not agree on one "safe" withdrawal rate. However, they do agree that your annual withdrawal rate generally should not exceed your average annual earnings rate. 5. Target the initial Asset Allocation you should maintain in retirement.
The factors discussed above, such as the source of your retirement paycheck and your cash-flow requirements will influence your initial asset allocation. A general recommendation is to hold three to four years' worth of retirement paychecks in cash and cash equivalents. 6. Determine whether to draw your paycheck from taxable accounts,
tax-deferred accounts or a mix of both. The rule of thumb is to spend down your taxable accounts first. This permits your tax-deferred accounts to continue their tax-deferred or tax-free (as with Roth IRAs) growth. |
