Schwab Real Life Retirement™ Services
Retirement Income Fundamentals
Retirement Income Fundamentals
When it’s time to turn savings into income, start with a big-picture overview of what it takes to
help generate retirement income that lasts. Whether you plan to build your own portfolio or have
your investments professionally managed, you can count on us for the help you need.
1.Review your situation.
2. Maintain a year of cash.
3. Consolidate income in a single account.
4. Match your investments to your goals
and needs.
5. Cover essentials with predictable income.
6. Don’t be afraid to tap into your principal.
7. Follow a smart portfolio drawdown strategy.
8. Rebalance annually to stay aligned with
your goals.
9. Stay flexible and re-evaluate as needed.
We’re ready to help with your retirement income.
•Call for a personal retirement consultation at 1-877-673-7970.
•Learn more about how to generate income at schwab.com/generateincome.
The information here is for general informational purposes only and should not be considered an individualized
recommendation or personalized investment advice. The investment strategies mentioned here may not
be suitable for everyone. Each investor needs to review an investment strategy for his or her own particular
situation before making any investment decision.
Examples provided are for illustrative purposes only and are not intended to be reflective of results you can
expect to achieve.
Schwab Real Life Retirement™ Services
Retirement Income Fundamentals
1.Review your situation.
•Know how much money you’ve earmarked for retirement, where you keep it, and how much, if anything,
you want to leave to heirs.
•Estimate monthly and annual expenses and create a retirement budget. Break out expenses into two
categories: those that are essential (such as housing and health care) and those that are discretionary
(such as travel and entertainment).
Use our budget planner at schwab.com/budgetplanner.
•Determine how much of your spending needs are covered by non-portfolio income sources (such as
Social Security) and how much (if anything) you’ll need to cover with income from your portfolio.
Estimate Social Security payments at ssa.gov/estimator.
Estimated expenses
Regular income
sources
What your
portfolio
must provide
Take action.
• Use our Retirement Savings Calculator tool to see where you stand. Go to schwab.com/retirementcalculator.
• Learn more about how to generate retirement income at schwab.com/generateincome.
• Call for a personal retirement consultation at 1-877-673-7970.
Schwab Real Life Retirement™ Services
Retirement Income Fundamentals
2.Maintain a year of cash.
Set aside an amount equivalent to what you’ll need from your portfolio for at least a year.
This is the money you’ll use—along with your regular sources of income—to cover all expenses throughout
the year.
Where you might keep this money:
•Checking or savings accounts
•Money market accounts
•Short-term CDs—depending on rates and your timing
TIP
•Combination of accounts
To avoid having to sell investments in a prolonged bear market, consider keeping one to four
years’ worth of portfolio withdrawals in more liquid investments.
Take action.
• Review: “What About Cash?” at schwab.com/whataboutcash.
• Learn more about how to generate retirement income at schwab.com/generateincome.
• Call for a personal retirement consultation at 1-877-673-7970.
Schwab Real Life Retirement™ Services
Retirement Income Fundamentals
3.Consolidate income in a single account.
•When possible, you may want to deposit your regular sources of income into the account where you keep
your year of cash. Or, you might choose a similar type of account where funds can be easily transferred.
Pension
ds t
en es
id ter
iv
D d in
an
Social
Security
M
di ut
st ua
rib l
ut fun
io d
ns
•Consolidating and centralizing accounts as much as possible can make it much easier to manage your
investments and track your income and spending patterns.
Single
account
Rental
income
Take action.
• See how you can create your own paycheck at schwab.com/createyourpaycheck.
• Call for a personal retirement consultation at 1-877-673-7970.
Schwab Real Life Retirement™ Services
Retirement Income Fundamentals
4.Match your investments to your goals and needs.
As you begin to rely on your investments for income, you may feel most comfortable
investing heavily in income-generating bonds and CDs. But to counteract the long-term effects
of inflation, you may need to keep a portion of your savings in growth-oriented stocks as well.
Consider a progressively more conservative mix of stock and fixed income investments as you move
through retirement and your portfolio has fewer years to fund.
How you might adjust your portfolio over time
60%
stocks
40%
fixed
income
& cash
investments
Age 60–69
40%
stocks
60% fixed
income
& cash
investments
80% fixed
income & cash
investments
20%
stocks
Age 70–79
Age 80+
Read more about these allocations in “What Role Should Fixed Income Play in Your Retirement Portfolio?” at
schwab.com/fixedincomerole.
•For the stock portion of your portfolio, consider focusing more on dividend-paying stocks and stock
mutual funds.
•For fixed income, consider bond and CD investments with a mix of maturities that offer predictable
income and liquidity.
Take action.
• See how you can create your own paycheck at schwab.com/createyourpaycheck.
• Call for a personal retirement consultation at 1-877-673-7970.
Fixed income securities are subject to increased loss of principal during periods of rising interest rates. Fixed
income investments are subject to various other risks, including changes in credit quality, market valuations,
liquidity, prepayments, early redemption, corporate events, tax ramifications, and other factors. Investing in
dividend stocks carries some risk—the same as with any other type of stock investment. With dividend stocks,
you can lose money; for example, share prices can drop (regardless of whether the company pays dividends),
companies can reduce or eliminate dividend payments at any time, and inflation can reduce savings.
Schwab Real Life Retirement™ Services
Retirement Income Fundamentals
5.Cover essentials with predictable income.
Divide your expenses into essential and discretionary categories (see Fundamental #1), and
cover the essentials with predictable income sources. Doing so can reduce the chance of having to pull
money out of your portfolio to fund essentials when the market is down. If necessary, you can cut back
on discretionary items until market conditions improve.
Predictable income
Social Security
Pension payments
Annuities1
Interest payments
from bonds and CDs
Essential expenses
Fluctuating income
Stock dividends
Mutual fund and ETF
distributions
Proceeds from selling
investments
Discretionary expenses
Take action.
• Learn more about how to generate retirement income at schwab.com/generateincome.
• Call for a personal retirement consultation at 1-877-673-7970.
Guarantees are subject to the claims-paying ability and financial strength of the issuing insurance companies.
1
Schwab Real Life Retirement™ Services
Retirement Income Fundamentals
6.Don’t be afraid to tap into your principal.
Few people have portfolios large enough to allow them to live exclusively off the interest
and dividends their investments generate.
Chances are, you’ll need to supplement interest and dividend income with measured withdrawals from
principal. And while it’s natural to be concerned about spending your savings too quickly, there are ways
to tap your portfolio with a high degree of confidence that your money can last.
Tips to help make your money last 30 years:
•Maintain a diversified portfolio with an asset allocation that reflects your time horizon and risk tolerance
(see Fundamental #4).
•Limit your first-year withdrawal to no more than 4% of your portfolio’s value.
•Adjust subsequent years’ withdrawals by at least the rate of inflation.
approaches to consider
Guaranteed income
from an annuity
Investment dividends
and interest
Money from selling
investments
Money from selling
investments
Investment dividends
and interest
Investment dividends
and interest
Take action.
• Review income approaches at schwab.com/incomeapproaches.
• Read “Generating Cash Flow From Your Retirement Portfolio” at schwab.com/generatingcashflow.
• Call for a personal retirement consultation at 1-877-673-7970.
Annuities offering guaranteed income include income annuities and variable annuities with a lifetime
withdrawal benefit. Annuity income guarantees are subject to the claims-paying ability and financial strength of
the issuing insurance companies.
2
Schwab Real Life Retirement™ Services
Retirement Income Fundamentals
7.Follow a smart portfolio drawdown strategy.
To supplement your predictable income sources, such as dividend and interest income, Social Security,
pension payments, and rental income, consider drawing money from your retirement portfolio in
FIRST
Draw principal
SECOND
Take your required minimum IRA distribution
THIRD
Sell overweighted assets
FOURTH
this order:
Sell from your tax-advantaged accounts—
from maturing bonds and CDs.
if you’re 70½ or older.
in your taxable accounts.
starting with Traditional IRAs, then Roth IRAs.
Take action.
• Calculate the required minimum distribution from your IRA at schwab.com/rmdcalculator.
• Learn more about how to generate retirement income at schwab.com/generateincome.
• Call for a personal retirement consultation at 1-877-673-7970.
This information is not intended to be a substitute for specific individualized tax, legal, or investment planning
advice. Where specific advice is necessary or appropriate, Schwab recommends consultation with a qualified
tax advisor, CPA, financial planner, or investment manager.
Schwab Real Life Retirement™ Services
Retirement Income Fundamentals
8.Rebalance annually to stay aligned with your goals.
Annual portfolio rebalancing is especially important when you’re retired:
•There’s less time to recover from the potential losses or lackluster returns caused by a portfolio that
has strayed from your chosen asset allocation (see Fundamental #4). A portfolio that’s out of balance
can leave you with more risk or less growth potential than you want. These risks can be magnified in
volatile markets.
•Rebalancing also provides an opportunity to efficiently and objectively add to your annual cash balance
by taking proceeds from selling overweighted holdings (see Fundamental #7).
Portfolios go out of balance over time.
Hypothetical portfolio, 2007–2011
40%
bonds
60%
stocks
4 years
later
32%
bonds
68%
stocks
2007
2011
In this hypothetical portfolio, the stock allocation increased from 60% to 68%. Because stocks tend to
carry higher risk than bonds, increased exposure to stocks could elevate overall portfolio risk. Changes
in asset allocation can occur over time for a variety of reasons, including stock market performance,
changes in interest rates, and economic cycles.
Take action.
• Learn more about how to generate income at schwab.com/generateincome.
• Call for a personal retirement consultation at 1-877-673-7970.
Asset allocation strategies do not protect against losses or guarantee sufficient income for retirement.
Rebalancing does not protect against losses or guarantee that an investor’s goal will be met.
Schwab Real Life Retirement™ Services
Retirement Income Fundamentals
9.Stay flexible and re-evaluate as needed.
Things change. Situations change, markets change, priorities change.
•Are you living on less than originally calculated?
MAR
KE
ATIONS
TU
SI
S
TIE
RI
•Have a few years of punishing markets
made you rethink your spending or look for
additional income? PR
IO
•Are you now far enough into your retirement
that you can ratchet down the amount of risk
you’re taking in your portfolio?
TS
•Did you receive a large lump sum from a pension,
property sale, or inheritance?
It’s important to periodically revisit your portfolio asset allocation to stay aligned with
your broader investment goals.
Take action.
• Read “Retired but Thinking of Going Back to Work?” at schwab.com/goingbacktowork.
• Learn more about how to generate retirement income at schwab.com/generateincome.
• Call for a personal retirement consultation at 1-877-673-7970.
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