I get this question a lot from retirees and pre-retires: “Where can I get 4-5% interest and little to no risk?” In an environment where the benchmark 10-year US Treasury Note is yielding only 1.6% today1, investors are stressed about where they can make up the difference.
But this is not the real question. The real question is: “How can I retire with a steady stream of income and no worries?”
This is just one example of how preparing for retirement has changed so much from a few decades ago. When I finished graduate school in 1991, the yield on the 10-year US Treasury Note was 7.53%.2 At that rate, you could cover the 4-5% of income needed with the possibility that you might have enough to make up for inflation, too. Unfortunately, those days are gone which requires a new way of thinking to answer the question.
As financial planners we want to ensure that our clients have the money they need once they retire and have as little money worries as possible. While you are working, if the stock market declines, you might decide to just work a few more years to make up for the lower value of your investment accounts. But once you are retired3—especially if you have been out of the workforce for many years—going back to work is not easy. For some folks who currently have one or more health conditions or develop addition ones, going back to work may not even be an option.
Finding a solution
The solution varies because each individual or couple has unique work, health, family and financial circumstances. Generally, we see a need to be open to different options to address the risks of each of these four conditions. For those who need a steady stream of income, working longer, delaying Social Security or buying an annuity—or all three—may be required.
For others, dialing back risk in an investment portfolio may be required. After a lifetime of saving and investing more aggressively, changing to a more conservative approach sometimes does not come easily. “If I’ve been investing successfully during my working years, why would I change this approach in retirement?” is a question we also often hear. Yet, the financial market meltdown of 2008-9 surprised most individual and professional investors and took years for investors to recover.
Today, creating that steady stream of income is no longer as simple as buying bonds or certificates of deposit and collecting the income. A combination of approaches is needed to maintain your lifestyle. In addition, your retirement income plan needs to have the ability to adapt to your changing work, health, family and financial circumstances in retirement.
If you have questions about how to create an income stream for retirement, give us a call, we’re here to help. You can schedule a quick call with me by clicking HERE.
Lyman H. Jackson Lyman@PlanWithFPS.com
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