How Can You Cover the Gap Between Your Income and Expenses? Retirement Question No. 3
2. Retirement Accounts and Withdrawal Strategies — Most people hold the majority of their retirement savings in an employee IRA or a 401(k). These accounts can be accessed regularly during retirement, subject to specific rules. Typically, employer-sponsored retirement plans contain a mix of equities and fixed-income options that align with an individual’s risk tolerance or growth objectives. These investment options are usually offered as mutual funds within the employer’s retirement plan. You can further develop your strategic withdrawal plan by rolling over your 401(k) or IRA. This conversion process allows you to access a broader range of financial vehicles better suited to achieving your objectives. While the assets remain in a retirement account, you can hold them in various financial products, such as Exchange Traded Funds (ETFs). ETFs offer a diversity of mutual funds and are typically based on equity markets but generally have lower associated fees When you reach the age of 59 1/2, you can begin penalty-free withdrawals from your retirement accounts. However, under certain circumstances, you can access these accounts penalty-free even earlier. If you turn 55 during the calendar year in which you lose or leave your job, you can start taking distributions from your 401(k) without incurring the early withdrawal penalty. Although you can access these funds at any time and in any increments, we recommend establishing a consistent, regular disbursement plan to cover any expense shortfalls. 3. Non-Retirement Savings and Investments — Besides retirement accounts, you may have other savings and investments. A well- rounded distribution plan should also take this into account. You should tap into these accounts at various points in your retirement as part of a strategic tax plan. DEVELOP A GROWTH STRATEGY With a predictable income plan in place, you can focus on developing a growth strategy for the remainder of your portfolio assets. This approach will help ensure your savings and investments continue to grow and provide you with financial security and peace of mind throughout your retirement. If you consider your retirement account withdrawal strategies and create a stress-tested income plan, you can bridge the gap between your monthly expenses and guaranteed income. Working with our team to do this ensures your post-work years will be comfortable and financially secure.
In the first two parts of our “10 Questions for a Successful Retirement” series, we discussed estimating your monthly expenses in retirement and identifying your guaranteed income sources. If you did those calculations along with us, you might have noticed a gap between your expenses and income sources. Don’t worry — there’s a solution. In this third part of our series, we’ll explore how you can use your retirement accounts and savings to bridge this gap and maintain your desired standard of living.
CREATE A DISTRIBUTION PLAN To cover the gap between your monthly expenses and guaranteed income, it’s essential to establish a distribution plan. This plan will help you convert your assets into a regular income stream to replace the paychecks you were accustomed to during your working years. There are several ways to achieve this, depending on your individual needs and financial goals. 1. Bucket Planning — A common approach to building an income plan is to utilize a “bucket planning” strategy, which involves allocating your assets into different financial vehicles based on your immediate, short-term, and long-term needs. The more immediate your needs, the more conservative your approach should be. Assets designated for future income can then focus on growth. It’s crucial to balance these financial vehicles while considering factors such as inflation, taxes, market fluctuations, potential long-term health care costs, changes to income after a spouse passes away, and other unknowns.
2 McBeathFinancialGroup.com
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