Retirement Income Planning Strategies Ease Money Fears (2024)

If you want to avoid worrying about running out of money in your old age, good retirement income planning can be a big help.

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And fear about depleting your cash in your golden years is common.

When prospective clients at one of financial advisor Jeffrey Eglow's recent seminars were asked how many were nervous about outliving their assets, about 75% of the 30 attendees raised a hand, says Eglow, chief investment officer of Guardian Wealth Advisory, in Boca Raton, Fla.

And that reflects the widespread concern documented by national surveys.

So what can help ease such deep-seated angst? Relief starts with having a solid plan for matching your income and outlays. A key step is controlling the pace of withdrawals.Here are some strategies that can help with your retirement income planning. You can use one or more of these.

Retirement Income Planning: Create An Annuity

One strategy is to buy a single premium immediate annuity (SPIA). Among the many types of annuities, the SPIA has features that may particularly suit retirees, say experts like Glenn Daily, a fee-only insurance consultant in New York City.

Lacking the complications of other annuities, this product involves paying an insurance company an upfront lump sum. In return, you get a guaranteed income stream lasting as long as you'd like — including the rest of your life.

The payments will include a portion of your principal plus interest. Those interest rates are often somewhat higher than what you'd get with a CD, according to annuity.org.

SPIAs' steady income may be especially appealing if you don't want to choose income-generating securities on your own. It also provides relief if you're unsure your portfolio would generate enough income to last a long time, possibly for the rest of your life, without an SPIA.

"However, with SPIAs, you won't be able to cash in your investment early if you suddenly need money," Daily said. And, among other issues, unless you pay for a rider to your annuity contract, the payments won't be adjusted for inflation.

Bond Ladder's Role In Retirement Income Planning

A second strategy is to create a bond ladder.This approach strings together a series of fixed-income holdings, from shortest to longest in maturity. They typically run five to 15 years in length.

The aim is to provide predictable income from each issue's coupon payments. You also minimize the risk of default by using Treasury securities.

When a security matures, you can cash it in if you need the money. Or you can reinvest the principal and interest from the matured issue at the longest-maturity end of the ladder to keep the ladder going, says financial advisor Jill Gianola, of Gianola Financial planning, in Columbus, Ohio.

To create, say, a 10-year ladder, you could buy CDs, each separately coming due in years one through five, and Treasury Strips that individually mature in years six through 10. You buy Strips at a discount to face value because they pay no interest. They mature at par.

You could create the ladder all at once if you're near retirement. Or you could produce and pay for some segments before others if you're at least several years away from retiring, Gianola adds.

"Mathematically, the process is logical and easy to follow," said financial advisor Meredith Briggs, speaking for the Alliance of Comprehensive Planners. "And its income stream provides a lot of peace of mind."

Classic Retirement Income Planning Tool

A third strategy involves using the4% rule. The 4% rule is a guide for withdrawing savings in retirement, which was created by financial planner William Bengen in 1994.

In the first year you're retired, you withdraw a certain percentage of funds. Bengen originally recommended 4%.

Some advisors recommend that you adjust withdrawals for inflation in subsequent years. But if your portfolio grows enough thanks to investment returns, you don't need to adjust for inflation because the dollar amount rises even with a 4% rate.

Vanguard's version is called dollar-plus-inflation. It sets an initial withdrawal rate of 3.5% to 5.5% of your retirement balance, depending on your asset allocation and life expectancy.

Its primary downside: If the market goes down too far for too long, you could run out of money in old age if you boost spending every year by the inflation rate, says Colleen Jaconetti, a Vanguard senior investment strategist.

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