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17th Dec 10
Helen Lumas
A retirement allocation strategy should address income security and inflation protection.
To consider your criteria for a steady income, you need to first create a financial budget that takes into consideration your minimum income goals. Then, you should contemplate a technique for supplying the income and then decide on an investment choice.
A self-managed withdrawal is one method that can be used to provide a retirement income. In this method, the individual is responsible for managing the investment and the amount being withdrawn. Obviously, these decisions constitute some risk, but some people prefer to have complete control over their retirement. Naturally, someone undertaking this task should take great care that the income will last well into the future. This may mean making very conservative decisions to protect against the possibility of living a very long time.
A conservative asset allocation should be implemented, so that market risk does not destroy the income stream. Holding Interest bearing bonds is one particular investment choice to consider. In contrast, bonds held inside a mutual fund are held at market value, so the fund is subject to fluctuations. In fact, the fund value will move in the opposite direction of prevailing interest rates and your account will start shrinking just when you need protection against rising prices. On the other hand, bonds held outright can be held to maturity without incurring a penalty if market interest rates change. The amount received will always correspond with the face value and coupon rate that existed upon issuance. Once the bond matures, you will get your original investment back. The one caveat, is that you may want to reinvest at that future point in time, and you will be subject to the rates that are available.
Alternative methods of protecting the sustainability of your retirement income include investing more aggressively, such as in stocks, and incorporating a lower draw down rate.
Investment volatility can seriously affect your retirement income planning. Be sure to visit the links to learn more.
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