There are several solid retirement investment exit strategies to maximize your cash flow. As you prepare for retirement, planning the appropriate exit strategies are important to achieve peace of mind, and more effectively view financial issues. Fortunately, there are several dependable solutions to leverage your assets for a comfortable, financially rewarding retirement. These include:
TOTAL RETURN APPROACH:
Interest and dividend payments are not the only way to generate cash flow. Investors can also sell their appreciated stocks to help meet their income needs. Supplementing dividend and income payments with long-term capital gains is known as a “total return” approach. In recent years, with the markets hitting all-time highs and yields continuing to fall, this has proven to be a strategy worth considering.
INCOME INVESTING:
The idea behind income investing is to provide most or all of your cash flow needs through reliable dividends from stocks and reliable interest from investment grade bonds. With interest rates so low, that probably means more stocks and less bonds than in the past. Of course you need to be able to distinguish in advance dividends that are “reliable” from those that aren’t, which isn’t always easy.
Look for profitable, well-managed, blue-chip companies with sound balance sheets. The proportion of profits paid out in dividends should be reasonable. The companies should have strong competitive positions in stable industries that are also growing.
REVERSE MORTGAGE:
A reverse mortgage enables you to borrow money using your home as security. This way, you can access the unencumbered financial value of your property without taking on a new mortgage payment. Using this post-retirement exit strategy, you can eliminate monthly mortgage payments and remain protected against housing market declines. Make sure to find a lender that has your best interest, “Doing the right thing in our business, reverse mortgages, means doing what is right for senior homeowners.” says founder Michael Branson of All Reverse Mortgage.
DELAY SOCIAL SECURITY PAYMENT:
Furthermore, you can delay your social security payments in order to maximize your monthly retirement cash flow. For every year that you delay social security payments before you turn seventy, you can significantly increase the amount you receive in the future. Since age 62 is the earliest you can receive SSI benefits, you can potentially defer your payments for up to eight years. Of course, this will make a significant difference in your overall retirement income. Certainly, deferring your social security payments to a later date is a great way to maximize your cash flow.
BUCKET STRATEGY:
The “bucket” approach protects you from sequence of returns risk by separating your portfolio notionally into at least two buckets. You draw your day-to-day cash flow needs from a bucket composed of cash and high-quality short-term bonds. You keep your risky assets in a separate long-term bucket and avoid selling them when markets are down. U.S. financial expert Harold Evensky advises that you should maintain at least five years’ worth of cash flow needs covered by cash and short-term bonds. That way, in a downturn your long-term investments would have at least five years to recover undisturbed. As your short-term bucket gets depleted, replenish it with medium-term bonds coming closer to maturity or by selling long-term assets when prices are favorable.