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9 Principles to Help Boomers Live on Retirement Income

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Many American baby boomers have yet to determine how much income they will need in retirement, and even more are uncertain how to invest their money to help maximize their retirement income, according to a new report by Charles Schwab.

Schwab’s “Retirement Income Fundamentals,” released Thursday, sets out nine principles to provide investors with actionable guidelines for funding their income in retirement.

In a survey of some 1,000 Americans ages 55–70 with $100,000 or more in total investable assets, Schwab found that 33% had not yet determined what their essential living expenses in retirement would be. Sixty-four percent said they had less than one year of cash savings at any one time for retirement living expenses. Nearly half were uncertain how to invest their money to maximize retirement income.

“Saving for retirement is something most Americans know they have to do, but many people are confused, scared, and literally frozen when it comes to flipping the switch from saving to withdrawing,” Carrie Schwab-Pomerantz, a Charles Schwab senior vice president, said in a statement. “Our data shows that people even just a year or two away from retirement don’t know how to tap their savings effectively once they transition to retirement.

Schwab recommended following these nine fundamentals when planning for retirement income:

  1. Review your situation: how much money you have earmarked for retirement, where you keep it and how much, if anything, you want to leave to heirs.
  2. Maintain a year of cash that you will use—along with your regular sources of income—to cover all expenses throughout the year.
  3. Consolidate income when possible in a single account where you keep your year of cash. Or you might choose a similar type of account where funds can be easily transferred.
  4. Match your investments to your goals and needs. Investing heavily in income-generating bonds and CDs may make you feel more comfortable, but you may also need to keep a portion of your savings in growth-oriented stocks to counteract the long-term effects of inflation.
  5. Divide your expenses into essential and discretionary categories, and cover the essentials with predictable income sources.
  6. Don’t be afraid to tap into your principal to supplement interest and dividend income. There are ways to help tap your portfolio with a high degree of confidence that your money can last.
  7. Follow a smart portfolio drawdown strategy. To supplement your predictable income sources, consider drawing money from your retirement portfolio in this order:
  • Start by drawing principal from maturing bonds and CDs
  • Take your required minimum IRA distribution if you are 70½ or older
  • Sell overweighted assets in your taxable accounts
  • Sell from your tax-advantaged accounts. starting with Traditional IRAs, then Roth IRAs.

     8. Rebalance annually to stay aligned with your goals because there is less
time to recover from the potential losses of lackluster returns caused by a portfolio that has strayed from your chosen asset allocation.  

     9. Stay flexible and re-evaluate as needed your portfolio asset allocation
to stay aligned with your broader investment goals.