{"id":5968,"date":"2023-11-25T21:22:54","date_gmt":"2023-11-25T15:52:54","guid":{"rendered":"https:\/\/dushyantnomics.com\/?p=5968"},"modified":"2023-11-28T14:07:38","modified_gmt":"2023-11-28T08:37:38","slug":"monthly-income-after-early-retirement","status":"publish","type":"post","link":"https:\/\/dushyantnomics.com\/monthly-income-after-early-retirement\/","title":{"rendered":"How to Generate Monthly Income After Early Retirement"},"content":{"rendered":"\n
Generating monthly income after early retirement is a logical as well as an emotional exercise.<\/p>\n\n\n\n
Having worked all these years to get to an early retirement<\/a> the next step is to put your early retirement corpus<\/a> to work.<\/p>\n\n\n\n There are 2 primary ways to generate monthly income after early retirement from your retirement corpus.<\/p>\n\n\n\n The first method is so called Total Portfolio Approach. <\/p>\n\n\n\n The second method is the Income Approach.<\/p>\n\n\n\n The total portfolio approach is the rational and logical way to generate retirement income.<\/p>\n\n\n\n This is what your brain would tell you to do.<\/p>\n\n\n\n The income approach is the emotional way to generate retirement income.<\/p>\n\n\n\n This is what your heart will tell you to do.<\/p>\n\n\n\n Let us look at each of these 2 approaches in some more detail.<\/p>\n\n\n\n We will dig into the pros and cons of each of these retirement income generation models.<\/p>\n\n\n\n The total portfolio approach involves making withdrawals from your early retirement corpus from time to time.<\/p>\n\n\n\n Each withdrawal means you sell down a part of your portfolio principal as well as some of the capital gains in your portfolio.<\/p>\n\n\n\n At the same time the rest of your portfolio continues to compound and grow.<\/p>\n\n\n\n This is like the portfolio compounding you experienced while getting to the point of financial independence.<\/p>\n\n\n\n This is exactly what a systematic withdrawal plan (SWP) from your mutual fund is supposed to do.<\/p>\n\n\n\n It is dollar cost averaging in reverse.<\/p>\n\n\n\n There are some clear benefits of following this approach as outlined below:<\/p>\n\n\n\n In the total portfolio approach you take out income in the form of capital gains.<\/p>\n\n\n\n You can choose which assets to sell and when. This lets you take taxes into consideration much better.<\/p>\n\n\n\n It lets you to largely control your tax bill.<\/p>\n\n\n\n You also pay a relatively lower tax rate since capital gains are typically taxed lower than regular income.<\/p>\n\n\n\n By being in control of your cash flows you can balance your income and your expenses in retirement.<\/p>\n\n\n\n You can dial your income up or down depending on your specific cash needs during a specific period.<\/p>\n\n\n\n This lets you better manage your portfolio and keep your desired asset allocation in place.<\/p>\n\n\n\n Since you only take what you need, the rest of the portfolio can continue to grow and compound over the years.<\/p>\n\n\n\n You could follow the 4% rule to make portfolio withdrawals under this model.<\/p>\n\n\n\n This helps to maintain the purchasing power of your retirement corpus for a long time to come.<\/p>\n\n\n\nTotal Portfolio Approach to Generate Retirement Income<\/strong>
<\/h2>\n\n\n\nLower Taxes
<\/strong><\/h3>\n\n\n\nGreater Control Over Cash Flows<\/strong>
<\/h3>\n\n\n\nGreater Inflation Protection<\/strong>
<\/h3>\n\n\n\n