Until recently, retirees could depend upon three sources for retirement income: a pension, Social Security and savings. Pensions, essentially, guarantee the pensioner a monthly stream of income no matter the market’s ups and downs and the same is generally true of Social Security. A retiree’s ‘three-legged stool’ was fairly stable and consistent.
As pensions are becoming a thing of the past, most retirees have only a two-legged stool: Social Security and savings. Social Security continues to provide a steady stream of income but it will not fully replace all of a retiree’s income no matter their income level. Today, retirees are having to depend more and more on themselves – their savings – for their income in retirement. Since I entered the industry in 2000, the market has seen plenty of fluctuations which has caused retirees to become less confident in their ability to retire and have their money last throughout their retirement.
This is why I developed a commonsense approach to help people utilize their nest egg – their portfolio of savings – to create what amounted to a pension check for themselves. I wanted to ensure that my clients can retire with confidence.
My Piece by Piece™ retirement income model segments the retiree’s nest egg into 3 segments: income today, income tomorrow and flexibility.
There are 2 phases to building your nest egg:
- Accumulation stage: This is the time people build their nest egg with consistent savings. During this stage people are focused on growth and normally can handle market movements because time is on their side and they enjoy the benefits of compounding.
- Utilization stage: During this stage the focus shifts from growth to income stream generation. Therefore, adjustments in the investor’s portfolio are necessary. The investors switches to investments that produce income in the form of dividends and interest which creates a nice framework of income. This is the first stage of my Piece by Piece™ retirement income model.
The exact timing of these phases is different for everyone, but generally establishing a plan for how an investor’s nest egg will generate a retirement paycheck should ideally be 10 years before retiring.
However, no matter where retirement falls on your time line – 30 + years from now, 10 years, or even if you are in retirement currently – building the Piece by Piece™ retirement income model into your retirement plan will allow you to retire with confidence.
by: Debbie Craig, CFP®, MBA, CRPS®