As I plan for retirement, I have to consider my income sources and streams. While I still have quite some time until I reach retirement age, I feel that any good retirement plan will have a strong focus on income and how and from where that income will come.
For this reason, I’ve built a retirement plan that considers various income sources and streams and just how I will weigh those incomes in a variety of ways. This helps me ensure that I diversify my retirement income into more than just one or two areas.
Weighing amounts
When it comes to the types of assets that might comprise retirement holdings, there may be things like home principal, vacation or investment properties, bonds, cash, certificates of deposit or money market funds, metals like silver or gold, and of course retirement accounts, pensions, and Social Security.
Knowing what percent each of these assets comprise of a retirement asset total can help see where you’re greatest strengths — and potential weaknesses — lie. Seeing that 50 percent of assets lie in savings bonds, or that 80 percent of all assets are in the stock market might have you raising an eyebrow or two as such numbers can be indications of too little or too much risk in a retirement portfolio.
Personally, I don’t like to let any asset or asset type comprise more than 25-30 percent of our total portfolio.
Weighing returns
Weighing how retirement assets are performing is another critical area that can be integral to retirement planning success. I recently cashed in several old savings bonds since their interest rates were low and they weren’t performing as well as I’d liked.
Keeping an eye on the rates that investments are providing can help with deciding whether to keep them at work or pull them for reinvestment in other areas. In the past year, I’ve started tracking all personal asset performance from our home value to retirement plans to help me get a better gauge on returns and weigh whether they are worth sticking with or if it would be better to move on to try something else.
Weighing risk
Even though a particular retirement asset might be earning well or providing steady income, it could be extremely risky. And even though another retirement asset might not be providing the greatest returns in the world, it could be extremely safe. Something like a government savings bond might not seem too exciting, but it can provide a very stable and secure place to invest money. Meanwhile, something like a pension or Social Security benefit might seem secure, but as we’ve seen with the Detroit pension system and the possibility of the Social Security Administration estimating their ability to meet just 75 percent of estimated benefits in 2033, they might not be as stable as they appear.
This is why I try to balance my assets among a variety of risk levels so that if one falters, another one is there to pick up the slack.
And in these ways, I hope to weigh my retirement income sources and streams so that there is a proper balance between risk and reward and so that I’m diversified well enough to handle a variety of retirement and economic risks and scenarios.
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Disclaimer:
The author is not a licensed financial or tax professional. The information provided in this article is for informational purposes only and does not constitute advice of any kind. Any action taken by the reader due to the information provided in this article is solely at the reader’s discretion.