This article is a retelling of a wonderful article written by Carl Engelking and sent to me by a friend of Blissful Living, Rob King.
Saving for retirement is, in essence, constructing a well-oiled machine that generates income with its various moving parts.
Having retirement savings is absolutely important, but as important as this is where and how you save for retirement. The where and the how of saving now, is something akin to the moving parts of your well-oiled income machine. Which of these parts are set to provide you with a stable income for the rest of your life, and which ones will change with the rise and fall of the markets?
Stability is Key
Waking up each morning anxious about stock market fluctuations and their effect on your way of life is not something you want. The risks involved in having an income that is as volatile as the markets are too high, so you want your income-generating machine to have other parts that add to your income and secure it from unpredictability.
You want to have about two years’ worth of your short-term cash needs tucked safely in a savings account, or something similar.
How, then, can you stabilize your income? Build an ample cash reserve. You want to have about two years’ worth of your short-term cash needs tucked safely in a savings account, or something similar. Creating this financial buffer will protect you from sudden expenses and drastic market highs and lows. The money that flows through income annuities, Social Security, and pensions are more certain, and can typically provide stable income. This is not to say that these have your retirement expenses covered.
Investments and the money you make from them are not always predictable. Knowing when to sell investments is ideal, and a good marker for this is understanding when to replenish your cash reserve when the market is rising.
Meanwhile, permanent life insurance premiums have a portion of your payments set aside to grow without being taxed. This is a great source of income during a down market, especially as this cash value grows.
The key to stability? Diversity. Diversifying your portfolio will help you maintain the lifestyle you want to live, even if your income comes from different sources.
Tax Efficiency: Paying Less to Save More
With varying sources of income, there is wisdom in how much and how often you pull money out of each source of income. Properly planning to pull money out of these sources of income to avoid getting taxed higher is a way of balancing the money that you hold in your hands. Selling investments, for example, can lead to an increase in your taxable income, which means you lose more than you can gain. Wisely plan and strategize how you can maximize your taxable income.
This sort of strategic withdrawal of funds from taxable and non-taxable income sources gives you control over how much and when you need to pay taxes. A tax-diverse retirement income plan is more efficient and minimizes losses when needs arise.
Start NOW
It may seem super simple to use multiple assets in retirement: keep taxes as low as possible and maintain a stable income. This well-oiled machine, however, can be challenging to manipulate in terms of timing. This is where trained financial professionals come in who can develop a tailor-fitted plan depending on your needs and expectations.
Remember that all investments involve risks and potential losses of the principal amount you invest. Be wary and seek professional advice from an independent tax advisor for legal or tax advice.
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Wishing you peace, wellness and tranquility.
Namaste,
Rochel Marie Lawson
The Queen of Feeling Fabulous
