Investors who defer the same amount of money from their paycheck into a 401(k) plan at regular intervals are practicing dollar-cost averaging. By investing the same fixed dollar amount each time, the investor buys more shares when prices are low and fewer shares when prices rise.1 The long-term effect is that the average cost of each share purchased will be lower than the average share price.2
This strategy can work great when you are trying to accumulate assets for your retirement. But what happens when you withdraw from your investments for retirement income? While dollar-cost averaging reduces the risk of investing a lump sum of money when prices peak, it increases your risk of losing previous gains if you withdraw money when prices have dropped. If a retiree receives automatic systematic withdrawals for a fixed level of income, then in months when share prices drop, he or she will likely have to sell more shares to raise the needed money. Once those shares are sold, they never have the ability to recover lost gains.3
To create a more prudent income distribution plan, you may consider incorporating some solid, reliable income in your portfolio, in addition to Social Security benefits. This could mean government-backed bonds or an insurance-backed annuity.4 If you’d like to discuss how to position your assets to combine both guaranteed income and growth opportunity, please contact us.
It’s a good idea to develop multiple streams of retirement income. Ideally, you want to have the flexibility to stop and start withdrawals strategically from accounts that are performing well, giving others time to recoup paper losses.5 Also, maintain a healthy portion of assets in a liquid account to help pay for periodic expenses when you don’t want to tap your investments.
Another option is to be flexible with your retirement budget, such as having a Plan A budget and a Plan B budget. When the markets take a downturn, you can switch to budget B and downsize your expenses, perhaps by cutting out vacations, large purchases and eating out for a while. This shouldn’t be too hard given the way people have had to reign in their lifestyle throughout the past few months; you could call it your Pandemic Budget.6
Fresno Retirement Advisor Takeaways
Soutas Financial your Fresno financial planner would like to remind you of the following points: Investors who defer the same amount of money from their paycheck into a 401(k) plan at regular intervals are practicing dollar-cost averaging. This strategy can work great when you are trying to accumulate assets for your retirement. But what happens when you withdraw from your investments for retirement income? To create a more prudent income distribution plan, you may consider incorporating some solid, reliable income in your portfolio, in addition to Social Security benefits. It’s a good idea to develop multiple streams of retirement income. Ideally, you want to have the flexibility to stop and start withdrawals strategically from accounts that may be performing well, giving others time to recoup paper losses.5
Diversifying your retirement assets among a variety of vehicles and alternatives—both insurance and investment oriented, depending on what is appropriate for your situation—may offer you a better chance of meeting your retirement income goals throughout your lifespan. We help our clients with problems sometimes associated with retirement such as stopping spend down and avoiding probate. In doing so we leverage Long-Term Care Strategies as well as Asset Protection strategies designed to help accomplish those goals.
When searching for Fresno financial advisors, look no further than Soutas Financial & Insurance Solutions Inc. your Fresno financial planner is committed to helping take the complexity out of retirement planning. By using a variety of insurance and investment strategies that focus on Asset Protection, Long-Term Care Strategies, Legacy Planning, Tax-Efficient Strategies, IRA, 401(k) & 403(b) Rollovers, Life Insurance Annuities, Medicare, we can help you develop an overall retirement income strategy specific to you and your family. We have a strong team of professionals helping ensure you receive all the assistance you need not only in developing your retirement income strategy, but in maintaining it throughout your retirement. Contact us today at 559-230-1648 or visit us today at Soutas Financial to get your retirement plans on track for success!
Soutas Financial & Insurance Solutions Inc.
333 W. Shaw Avenue Suite 106
Fresno, CA 93704
Content prepared by Kara Stefan Communications.
1 James Chen. Investopedia. March 16, 2020. “Dollar Cost Averaging.” https://www.investopedia.com/terms/d/dollarcostaveraging.asp. Accessed July 10, 2020.
2 Dan Burrows. Kiplinger. April 17, 2020. “Dollar-Cost Averaging: How Does DCA Work, And Should You Do It?” https://www.kiplinger.com/article/investing/t052-c008-s001-dollar-cost-averaging-how-does-dca-work-should-you.html. Accessed July 10, 2020.
3 Matt Becker. The Simple Dollar. April 9, 2020. “The Truth About Dollar Cost Averaging.” https://www.thesimpledollar.com/save-money/the-truth-about-dollar-cost-averaging/. Accessed July 27, 2020.
4 Dennis Ho. The Street. July 2, 2020. “How to Use a Deferred Income Annuity to Avoid Running Out of Money in Retirement.” https://www.thestreet.com/retirement-daily/planning-living-retirement/how-to-use-a-deferred-income-annuity-to-avoid-running-out-of-money-in-retirement. Accessed July 10, 2020.
5 Jeff Rose. Forbes. Nov. 2, 2017. “5 Ways To Generate Different Sources Of Income.” https://www.forbes.com/sites/jrose/2017/11/02/different-sources-income/#42d46f7137bb. Accessed July 10, 2020.
6 Rebecca Moore. Plan Sponsor. June 22, 2020. “Clearing Up Confusion About Retirement Timing.” https://www.plansponsor.com/in-depth/clearing-confusion-retirement-timing/. Accessed July 10, 2020.
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We are an independent firm helping individuals create retirement strategies using a variety of insurance products to custom suit their needs and objectives. This material is intended to provide general information to help you understand basic retirement income strategies and should not be construed as financial advice. Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Soutas Financial & Insurance Solutions, Inc are not affiliated companies. California Insurance License # OK48173
The information contained in this material is believed to be reliable, but accuracy and completeness cannot be guaranteed; it is not intended to be used as the sole basis for financial decisions. Investing involves risk, including possible loss of principal. Insurance product guarantees are backed by the financial strength and claims-paying ability of the issuing company. Diversification cannot ensure a profit or guarantee against losses in a declining market. If you are unable to access any of the news articles and sources through the links provided in this text, please contact us to request a copy of the desired reference. 722736 – 9/20