Wednesday, October 15, 2014

5 Elements of a Retirement Drawdown Plan

Having watched several relatives prepare for retirement, I’ve seen that it can be an exciting, yet somewhat scary process.  And there can be a variety of elements that go into preparing for retirement.  Signing up for Social Security and Medicare, determining how much expenses will be, ensuring that you have things to stay occupied, and figuring out whether you’ll have enough income to cover expenses are a few of the more major items that may crop up on that retirement to-do list.   
And ensuring that income is being derived in the correct amounts and from the proper sources can be key to a successful retirement. 

Fixed income
Maybe the most stable source of income for a retirement drawdown plan is that of fixed income.  Things like a pension or Social Security can make for very secure income streams, and while such payments could be subject to future reductions, they are typically more reliable than many other retirement income options.

Stock market investments
Stock market investments such as individual stocks, an IRA (Roth or regular), 401(k), or 403(b) can be a crucial element of a retirement drawdown plan.  However, it’s important to bear in mind that with stock market-based investments, while the returns can be good when the markets are up, the hits to your personal finances and retirement income can be severe when the market is down substantially.  The variability and risk involved in stock market investments may mean that its reliability as a retirement source of income may not be a strong as with things like cash or fixed income assets.

Cash can prove a valuable portion of a retirement income drawdown plan.  With cash in a savings, checking or money market account, you likely won’t have to worry about paying taxes on withdrawals or suffering delays waiting for funds to be distributed.  On the downside, such money may not earn much if anything in interest or dividends and will likely be “asleep” in such accounts until you choose to put it to work.

Earnings – both real and potential
Moving into retirement with some backup sources of income may not only alleviate financial strain, but decrease some of the stress over retirement finances.  Whether it’s current income from things like side jobs or hobbies like collecting or online selling that make you a little extra money, or it’s available income from things you already own that can be converted to cash, available earnings – both real and potential – can make for a nice financial reserve in retirement.

Having an extremely good handle on expenses can be another critical element to forming a retirement drawdown plan.  Just ensuring that you have stable income streams might not be enough if they don’t outweigh expenses.  Doing a tally of existing and potential expenses not just before retirement, but moving into and during your golden years can provide a better handle upon just how much you’ll need in income and from where those funds should derive.


The author is not a licensed financial professional.  This article is for informational purposes only and does not constitute advice of any kind.  Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.

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