How to help maximize your retirement income

January 25th, 2011 John Evans

The long-awaited golden years have arrived and you’re looking forward to enjoying your retirement. You’ve saved and invested wisely throughout your career to provide a stable financial cushion. But now that you’re an actual retiree – where do you go from here?

Our simple retirement action plan provides you with some simple steps to help maximize your retirement income.

Factor in inflation.

With longer life expectancies, the need to finance ongoing living expenses and the requirement to take annual distributions from retirement accounts, you’ll want to be sure your returns exceed the rising cost of living. Even at a moderate 3% rate, inflation can substantially cut the purchasing power of your savings over 20 years. A balanced portfolio of investments to maximize security while building needed profitability may be crucial to your financial wellbeing.

Keep stocks working for you.

Many people believe that retirement investing means allocating savings to investments that present little risk to principal, such as money market accounts or certificates of deposit. While the vast majority of these investments historically have not lost value, you should also consider the risk that long-term returns may not keep pace with inflation.

Historically, stock returns have generally outpaced inflation by the widest margin and have provided the strongest returns over the long term. Depending on your risk tolerance, you may want to consider keeping a portion of your portfolio invested in stocks and stock mutual funds throughout your retirement.

Focus on yield.

Along with some stock investments, a significant portion of your principal will likely be invested in fixed-income investments to provide a consistent stream of income. How much risk (maturity and credit risk) you need to take in these investments depends in part on how much income you need.

Government bonds of varying maturities and coupon rates typically are available to match your projected cash flow needs. You’ll earn the stated rate of interest and likely have little risk of loss of principal, if you do not sell the bonds before the scheduled due date.*

Your retirement distribution.

For many people, retirement is also a time to elect required minimum distributions (RMDs) from company pension and retirement savings plans, IRAs or annuities. Because these distributions often involve complex analysis of income and tax scenarios, it’s wise to consult your financial advisor.

Currently, withdrawals from traditional IRAs must begin no later than April 1 following the year you turn 70-1/2. After that, you must make annual withdrawals by December 31 each year.

If you have substantial assets that generate more income each year than you spend, consider sheltering some of your investments in an annuity. Your investment earnings will grow and compound tax deferred until withdrawal, when they are taxed as ordinary income. Because annuities may impose fees and surrender charges, study them closely to determine whether they are appropriate for you.

When building a portfolio that is appropriate for your particular circumstances, and deciding how much should be allocated to each asset class, consider your risk tolerance and your need for income versus growth. Work with a financial advisor to find the right balance.


*Government bonds and Treasury Bills are guaranteed by the U.S. government as to the timely payment of principal and interest and, if held to maturity, offer a fixed rate of return and fixed principal value.
The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate to you, consult your financial advisor prior to investing.
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John Evans

About the author

John Evans is Investment Services Manager at MidWestOne Bank. He specializes in investments and retirement planning.

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