Four Strategies To Help You Become Financially Stable For Your Retirement
A financially stable future includes setting aside a substantial sum of money in your retirement fund. Financial planning also involves coming up with some smart decisions regarding how and when you should withdraw your money. There are a few retirement distribution strategies that you can embrace to max out your savings further in case of a long retirement. Here are four of those retirement distribution strategies which you can easily embrace to ensure financial stability even after your retirement. Go through these strategies and see which of these you can apply to gain true financial independence post-retirement.
The Flooring Strategy
You can be assured of a guaranteed income through some retirement accounts. These accounts comprise pensions, annuities, and Social Security as well. Through this strategy, you can notch up enough money to meet your basic requirements. That can be carried out if you postpone the initialization of your Social Security benefits or by purchasing your annuities. If you hold up your benefits until the time you reach the age of 70, you will be liable to an 8% increase in your Social Security every month. This strategy will suit people who are not in favor of taking any kind of risk. A concrete financial floor would make sure that you continue to provide for your basic expenses irrespective of the market conditions.
The Bucket Strategy
401(k)s and IRAs don’t guarantee you a steady flow of money, and this is where the bucket strategy comes into play. By bucketing your money, you will ensure that a good portion of your money will be protected for a certain period of time while you let a bigger sum grow in the long run. This particular strategy can depend on an individual’s requirements and of course, how long they are expected to live, and this involves three buckets. These might set your money aside for a period of three years probably in cash or bond funds. Even though there wouldn’t be significant financial gains here, the stability that your money would receive will protect you from incurring losses in the future. The bucket strategy will protect your portfolio against any kind of market risk and that’s all you need to have a secured future.
The Systematic Withdrawal Strategy
Some retired individuals withdraw money from their retirement accounts whenever they want. This approach needs to be changed if you want to build a sizeable nest egg. Withdrawing the same amount of money every month is a much smarter approach, and this is what you call a systematic withdrawal. This will help you to notch up a predictable income in a market that keeps changing from time to time. You might have heard about the 4 percent rule. According to that, if you withdraw 4 percent from your retirement fund in the initial year and then keep making inflated-adjusted withdrawals every single year thereafter, you will have enough money to sustain your retirement period.
The Account Sequencing Strategy
In cases of systematic withdrawals, you must keep a proper account of where you are withdrawing your money from. Maintaining a sequence of pulling out funds is known as account sequencing. An account sequencing will help you minimize taxes. Low tax payments imply that you will be having a lion’s share of the money invested and hence, saving more in your account. There are a number of advisory firms that make use of software to find out the best ways to minimize tax payments. In case of individuals who are above 70 and a half, the government asks them to make withdrawals of a certain amount from their retirement accounts. It might be in your best interest to withdraw money from either Roth accounts, which are tax-exempt, or brokerage accounts, which are taxable. However, that depends on individual circumstances.
These four methods will help you make sure that you always have a considerable sum in your retirement accounts. These distribution strategies might not fit the bill for some retired individuals and they might find them really tough to navigate through. In such cases, professional guidance is required. You might consider appointing a personal finance manager or have a detailed discussion with someone who has a thorough knowledge of such issues.
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