Start by drawing income from sources other than your portfolio. These can include Social Security, pensions, income property or part-time work. Then start tapping into your portfolio.
Think of it as writing your own retirement paycheck. As a guideline, consider drawing funds in this order:
To generate income at regular intervals, you can create a bond ladder of high-quality bonds with maturities of 1 year to 5–10 years.
Laddering means buying bonds or notes that mature on different dates. It has two important goals:
Rebalancing your portfolio to control risk and stay on track with your goals is important at any age. In retirement, rebalancing can include shifting to a more conservative investing approach.
For instance, early in retirement when you may have higher expenses, you may be willing to take on increased risk in exchange for the potential for more growth. As the years go on, you can adjust your asset allocation to reflect your shorter time horizon.
You can take care of some of your cash flow needs at the same time you rebalance your portfolio each year. As you reallocate your assets, take out the cash you need. For example, say your target allocation is 60 percent stocks and 40 percent bonds—but your portfolio has drifted to 65 percent stocks and 35 percent bonds. You could cash out what you need from the stock portion and then reallocate what's left over to bonds until you're back on target.
RMD is the minimum amount that you must withdraw each year. By federal law, traditional, SEP, SIMPLE and Rollover IRA account holders and participants in some qualified retirement plans must begin taking distributions no later than April 1 in the year following the year in which they turn age 70 ½. Roth IRAs are not subject to RMD. (Exceptions apply in 2009.) All shortfalls from the RMD are subject to a 50 percent penalty tax.
While you're required to take your RMD annually, it can be taken from either one IRA account or multiple IRAs. There are several considerations in calculating your RMD. Talk to your tax advisor or go to IRS.gov.
For your own peace of mind, make sure that the health insurance you have is adequate for your needs—and that you're getting the best coverage for your money. Especially when it comes to prescription drug coverage under Medicare, it's smart to review alternate plans during open enrollment periods.
Then there's the question of long-term care insurance (LTC). According to the U.S. Department of Health and Human Services, at least 70 percent of people over age 65 will require some type of long-term care services at some point in their lives. LTC insurance can be expensive. Premiums for LTC vary widely, depending on where the insurance is purchased, the age and health of the buyers, inflation options, and the specific type of insurance purchased. It may not be right for you, but it doesn't hurt to get the facts.
Finally, take a look at your life insurance needs. If you no longer have dependents relying on your income or future expenses that need to be covered, the money you're putting into life insurance may be better used in another way.
If you don't have an estate plan in place, create one now. It will give you peace of mind and may help keep harmony in your family.
If you do have a plan in place, you may want to review it to make sure it's up to date and accessible. Here are some practical considerations: