Once you accumulate a nest egg, you need to develop a plan to transition it into a monthly income in retirement. The money somehow needs to come from all the investments that you've made during your working years and be turned into cash that gets deposited into your checking account. Here are some ideas to turn your retirement savings into a predictable stream of income.
Bond coupons. Some individual bonds will give you annual, semi-annual, or even monthly coupons that will provide fixed income on a predictable schedule. Recognize that bond coupons are taxed as ordinary income, so you have to factor in taxes to get a true sense of what you can actually spend.
Dividend income. Usually distributed quarterly, but sometimes monthly, dividends will typically be deposited into your brokerage account unless you elect to have all dividends reinvested. But dividends aren't a sure thing. Dividends could be increased in a good year or even eliminated, though this usually only happens when the company is in a crisis. So, don't rely exclusively on one company's dividend income.
[Visit the U.S. News Retirement site for more planning ideas and advice.]
Annuities and pensions. A guaranteed payment every month in retirement can be a huge relief. If you have set up an annuity or are eligible to receive a pension, you will be getting a monthly check similar to Social Security.
Sell shares. For most investors, retirement will mean you need to sell shares of investments such as stocks, ETFs, mutual funds, and bond funds. This is the most complicated retirement income strategy because it requires you to actively decide when and how much to sell. But this could also be your most rewarding source of retirement income because long term capital gains tax rates are only 15 percent, even for the highest income earners. If you are careful, you could sell losing investments to offset ones in which you have gains, further lowering your tax obligations.
Figure out how much you will need to spend each month in retirement and develop a strategy to meet these expenses before you call it quits. Using several of these retirement income strategies at the same time can help you make sure the money will be there when you need it.
David Ning runs MoneyNing, a personal finance site aimed at helping others change their habits for a better financial future. He suggests that everyone to sign up for an online savings account to get more out of our hard earned money.