As you approach the time when you’ll trade your paycheck for retirement, you’ll begin relying on your hard-earned retirement income sources to help provide an income stream that will see you through your retirement years.
Determine your retirement income sources
Start by determining your potential sources of retirement income, and how much income they are likely to provide in retirement. Our printable worksheet can help you get started, and common income sources include:
- Social Security
- Pension plans (i.e., defined benefit plans)
- Annuities
- IRAs
- Retirement savings, including 401(k), 403(b), and 457 plans
- Other nonretirement savings, including brokerage accounts, savings accounts and certificates of deposit (CDs)
Categorize your retirement income sources
As you think about the retirement income sources available to you, begin grouping them into income categories such as lifetime, dividend, and interest income. Because of their predictability, many retirees use lifetime income sources to cover essential living expenses. Discretionary and unexpected expenses are generally more flexible than essential expenses, so your investable assets can help cover these costs.
|
Dividend |
Interest |
Lifetime |
|
|---|---|---|---|
| Goal
|
Income with growth potential
|
Steady income stream
|
Lifetime income stream
|
| Examples
|
Dividend-producing stocks, equity mutual funds
|
Bonds, bond mutual funds, fixed income instruments, cash, CDs
|
Social Security benefits, pension plan payments, annuity payments, insurance benefits
|
| Helps manage
|
Adverse impact of inflation
|
Market volatility
|
How long assets will last and market volatility
|
| Benefit
|
Seeks to provide growth to help outpace inflation
|
Minimizes impact of market volatility
|
Creates predictable income to cover essential expenses, regardless of market activity
|
| Considerations
|
Severe market drops or prolonged periods of volatility can reduce portfolio value
|
May not produce income adequate to outpace inflation and rising health care costs
|
Limited liquidity and control of assets Additional costs associated with annuity and insurance products
|
Diversify your retirement income sources
Because each retirement income category represents a different type of income, and mitigates different retirement risks, diversifying your retirement income across all three can help you generate income in retirement that may last a lifetime.
- Dividend: Equity income investments. Designed to provide long-term growth and income, equity income investments can help offset the effects of inflation. But, because of their growth potential, they are also subject to market volatility. As you approach retirement, keeping a portion of your investable assets invested in high-quality, dividend-producing stocks and equity mutual funds can hedge your retirement portfolio from inflation risk. These investments also give your portfolio the opportunity to benefit from strong market performance — which is increasingly important for retirees, as many people are spending 20 or more years in retirement.
- Interest: Bond and fixed income investments. Interest-bearing investments offer the benefit of a stable, low-risk income stream, while also preserving your principal investment. They may offer protection against market volatility, but may also be subject to credit risk. As you near retirement, increasing your interest-bearing investments may help protect your portfolio from market fluctuations.
- Lifetime: Social Security, pensions, and insurance and annuity products. By providing a fixed payment amount for life, lifetime income sources protect you from market volatility and lower the risk of outliving your money. Social Security benefits are the primary source of lifetime income for many of today’s retirees. Although you can start receiving Social Security benefits as early as age 62, or defer your benefits until age 70, the monthly payment amount you receive varies based on your retirement age. Our Social Security tool can help you decide when to start receiving Social Security benefits.
Get started today
- Print our worksheet and begin listing your expected retirement income sources.
- Learn more about investing options available to you.
- Request a free retirement consultation to see if your retirement planning is on track.
- Consider partnering with a Financial Advisor to create an investment strategy for your retirement portfolio.
Wells Fargo can help you invest your savings to create predictable retirement income
As you consider various strategies for investing your retirement savings, Wells Fargo can help. Get started today by calling us, requesting a retirement consultation, or learning more about withdrawal strategies for your retirement savings.
