Bridging Income for Early Retirees

If you invest your money wisely, maximized your savings, and diligently put money aside, you may be lucky enough to retire early. But how do you insure that you have enough money to live on comfortably for the duration of your retirement. This is the challenge of early retirement. How do you withdraw income from your investment portfolio, creating a steady stream of income until pensions and Social Security helps fill in the gaps.

  • Determine How Much You Need: You have to look at your allocations from your investments. You need to know how much you actually spend. How much will you need month to month to maintain your current lifestyle? Is your number $35,000 or $150,000 a year? Remember you have to have enough money to sustain you lifestyle. Many advisors say that you should plan until age 90 for men and 92 for women. This could be forty years for more depending on how early you retire.
  • Stay Flexible: When it is time to withdrawal from investment accounts, start with the taxable accounts first. This will allow the tax-deferred accounts to continue to grow. To ensure that you do not run out of money, do not withdrawal more than 3 to 4% annually. This will leave room for inflation and some growth in the investments over the following years.
  • Have a Cash Cushion: Life happens. It is important to be prepared for anything. Sometimes retirees find that they withdrawal too much in the beginning and paired with a market turndown this could cause them to be short over time. It is important to have a two to five year cushion depending on your risk level and anticipated expenses.

Remember this is your future you are planning. It is better to overestimate and accumulate a larger cushion then to underestimate. The last thing you will want to do as an early retiree is have to go back to work. Planning, preparation, and flexibility will be the key to enjoying you retirement.