How to secure your nest egg?
As Congress tries to come up with a watered down version of Social Security privatization plan, Americans can heave a sigh of relief that their retirement plans will not be completely thrown into disarray. In other words, they have a little more time to get ready for retirement. (Related article: Retirement planning for small businesses)
Consumer Reports Money Adviser (CRMA) has come up with five great tips to make your nest egg last. According to them, the surest way to make assets last is to avoid tapping them for as long as possible and to rely instead on earned income from a part-time job to cover some of your living costs. B
Pace Your Withdrawals. Avoid the urge to splurge. For money to last, retirees will have to find a withdrawal rate that is sufficient to sustain an acceptable living standard while minimizing the risk that you will drain your portfolio dry before you die. A broadly accepted guideline is sipping from your investment at a rate of three to four percent a year and adjusting each year’s withdrawal to restore purchasing power lost to inflation.
Buy a Steady Paycheck. To get a steady stream of income over and above Social Security, retirees may want to consider an immediate annuity, an insurance contract that, in effect, protects against living too long.
Punch Up Your Portfolio. With a solid lifelong foundation of regular monthly income provided by Social Security and a defined-benefit pension or immediate annuities, retirees can afford to keep a higher proportion of their 401(k) savings and IRA assets invested in broadly diversified, low-cost stock mutual funds without having to worry about making ends meet.
Turn Your Home into Cash. The equity accumulated in a home might be a retiree’s biggest asset. Today’s 65-plussers can sell and relocate to a smaller place nearby or a lower-cost part of the country, and use the net profits from the sale to buy in cash. Another option is a Home Equity Conversion, a type of “reverse mortgage.” Remember though that this recommendation makes sense only for seniors – not for a young American who has seen enormous increase in home prices during recent years. For young Americans, it is best to just stay tight for a while and see if the appreciation lasts.
Harvest Your Assets. With Social Security benefits, 401(k) plans, a conventional IRA, a Roth IRA, an employer-paid defined benefit pension, and annuities, retirees have a crop of assets that will mature in their own time.
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