Creating Income Streams for Retirement Living

Income Sources Need to be Tax Diversified to Generate Greater Net Spendable Income

When you’re planning for retirement income, diversification is important though it doesn’t guarantee you’ll have all you need. One moderately conservative mix when you retire is 40% of total assets in equities, 50% in fixed income, and 10% in cash. But what’s right for you depends on your age, the amount and variety of your accumulated assets, and your risk tolerance.

The amount of income your investments will provide after you retire depends on how much you’ve put away over the years and the kind of return your investments pay.

Let’s look at a hypothetical example. Bob and Mary have an income of $100,000 a year before they retire. Since they estimate that they’ll need 80% of their current income
to maintain a similar standard of living, they’ll need income of roughly $80,000 from various sources. Assume they’ll receive $25,000 a year from
Social Security and another $35,000 from an employer-sponsored plan. That means even in the first year of retirement, before inflation is a real factor, they’ll have $20,000 less than they need.

Depending on the investments they’ve made, they’ll either have access to enough income to meet their living expenses and have something left for pleasure, or they’ll have
to take other steps, including continuing to work, cutting back where they can, liquidating principal, or selling their house.

Assuming that they have accumulated assets worth $600,000, here’s a look at the income their diversified portfolio could produce if it were allocated in different ways. However, remember that
 these allocations are hypothetical illustrations and are not intended to predict the return on specific investments.

Contributions from the book Planning Retirement Income in this press release are used with permission from Light Bulb Press.