Strategies for Retirees to Create Their Retirement Income and a Legacy

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About-to-be retirees wonder how they can arrange a retirement income for themselves yet still maintain a legacy for their kids. Here are a few strategies to consider based on their pre-retirement income and savings. Use them to fashion your own approach.

*Pre-retirement scenario and your retirement concern:

You and your wife are about 65 and finishing your last year of working. Together you'll receive Social Security totalling about $20,000 per year and have saved about $500,000 in your IRAs. With your job you've been breaking even spending about $45,000 a year. And, you're a conservative investor.

You're interested in how you can replace your job's earnings that cover the $45,000 of annual living expenses so you won't run out of money during retirement and still have something to leave for your children

*Income strategies that preserve a legacy:

Your Social Security will cover $20,000 of your pre-retirement $45,000 of annual expenses. And retiring will probably reduce some job-related and income tax expenses. So you might need to generate less investment income than the remaining $25,000 that Social Security doesn't cover.

Also, since Social Security which account for about half your income needs is indexed to inflation, you only need to worry about the other half of that income keeping up with inflation.

*Strategy 1 - Straight withdrawal from IRAs and invest wisely:

If you withdraw only 4% from the $500,000 in your IRAs per year, you're IRAs will supply you with that $20,000 income. Maintaining such a low withdrawal rate may well allow your IRA savings to maintain its real value against inflation's damage - even for a portfolio equally balanced between equity and income.

With this approach you stay in control of your investment money and you'll have a legacy to leave your children. You may need fortitude to weather downturns in the stock market, but you'll also have investment money to use if things turn up a lot or a severe need occurs.

You can invest conservatively by buying strong dividend paying stocks. It's an advantage to a company to consistently pay dividends - even through market ups and downs. Construct a portfolio of some 25 high quality companies whose stocks both pay regular dividends and have shown these dividends consistently to rise with earnings.

This 'rise-with-earnings' dividend approach helps you keep up with a rising cost of living. And you'll have equity to leave to your children. But again, you need to learn to live with the uncertainty associated with market volatility.

*Strategy 2: Split your IRAs and buy an Immediate Fix Annuity:

For this strategy, take about $300,000 within your IRAs to purchase an immediate annuity. This annuity would guarantee about $20,000 annual income for the rest of both of your lives. But, remember, there's no money left over in the annuity when you both die and the fixed annuity won't increase payments to offset inflation.

However, you can invest that remaining $200,000 in your IRAs a little more aggressively if you'd like since your annuity and your Social Security are together meeting your income needs and represent an assured income flow for you.

So whatever you're able and willing to grow that $200,000 to will be your legacy. If your investment grows well, you can use some of your investment income to help offset inflation's effect on your fixed annuity payments.

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