Making the leap from deciding to take retirement income to actually putting those decisions into action can be nerve-wracking. That's because the choices you make can mean a major difference in the way you live—sometimes for 30 years or more. And putting off decisions often seems easier than making them. Deep down, lots of people hope that things will just work out.Realistically, though, you get the best results when you determine the income you'll need, weigh various strategies for providing it, and select the one that you believe will best meet your needs.
WHAT THE ISSUES ARE
- Your plans for the money
- The right time to start getting the income
- The tax consequences of various ways of receiving income
Experts say that you may need more income early in your retirement than you will later on. And you may be more comfortable spending money on travel, for example, if you've deliberately created a stream of income designed to pay for it.To be sure you have the money you want when you want it, you might ask your annuity provider about personalized payout plans or innovative programs for allocating your income.
CREATING A REVENUE STREAM
If you decide that the promise of income for life and the advantages of a regular return of nontaxable premiums as part of each income payment make sense for you, it's time for the next round of choices. The order in which you deal with them may vary, but these are the things you have to consider:
- Is the growth potential of variable income more important to your long-term plan than the predictability of stable fixed income? Or would you prefer to have some variable income and some fixed income?
- If you choose variable income, which benchmark rate of return should you select (provided your annuity company provides a choice of rates)?
Since there's no way to be sure how long you'll live and need income, you might consider making plans for five-year segments. That's long enough to see the effect of taking income from various sources during changing economic cycles. But it's short enough to catch potential problems and make adjustments in your spending style. This approach works well if you have the security of lifetime income for your basic needs.