Is your IRA income safe if the market were to take a tumble? The answer is maybe. Are you worried about the market going down again? Would you have enough income if you had to reduce your monthly withdrawals by 25% or more? Is your IRA income safe?
With all of the economic turbulence in the world right now asking the question about safety is the right thing to be doing. How do you tell if your IRA income is safe? It has to do with your underlying investments and how you generate IRA income.
Bonds
If your income is coming from bonds you are probably safe. You just need to make sure the issuer of the bonds is doing OK financially. How do you do this? One way is to check your statement, if you bond value is down it is worth looking into further for sure. Google your issuer name and see if there is any bad news associated with the company or government. Call your broker and discuss your options. You can sell bonds but if it looks like temporary problems or just general bond market problems you not need to sell.
Stocks and Mutual Funds
If your IRA income is coming from equity investments then you have more to worry about. Bonds going down in value do not affect your IRA income stream but the market going down most definitely can. How do you make sure your equity investments are safe? Stocks should be researched individually and discussed with a broker. Even though you can't be certain, you can be reasonably sure the company will not go out of business if you will do the proper research and make sure it is fact and not just you hoping the company is doing OK. The stock being down does not necessarily mean the business is in financial trouble.
For mutual funds you need to research the fund but also the fund manager and fund company. If you still believe in the company and the manager after doing your research then you will probably be OK.
Annuities
Variable annuities should be researched basically like mutual funds. Except that for all kinds of annuities you need to check the financial health of the annuity company. Look for their current ratings and how the current ratings have changed over the last 5 years or so. You might have to call the insurance company for the ratings information.
Fixed annuities are different in that the value will not go down. The insurance company's ratings are still important to know.
These are all ways to check on your investments to make sure the underlying investment is sound but your IRA may still be volatile. A better question to ask may have been, Is my IRA income going to still be there when I need it even though the market is so volatile and interest rates are up and down? It is a long question but more accurate.
The answer is still maybe! Bonds are usually OK if the company checks out. Fixed annuities are almost always OK.
If you are in the market or variable annuities and your investments are going down in value then pay close attention.
Basic retirement planning practices are to take out a certain percentage of your investments each year as your IRA income and leave the rest in to grow your account value. If your investments are not growing at that percentage or more, you need to lower the percentage you are taking out each month or year. If you decided that 5% was a good number to withdraw each year then you must make certain that you earn 5% or more each year to break even.
Is your IRA income safe? As long as you don't take out more than you earn, the underlying company that issued the investment is sound, and you have checked out the insurance company if it is an annuity your IRA income should be safe.
Unfortunately since there are no absolutes in the investment arena and the lack of information or the ability to read the massive amounts of financial information you need to use your best judgment. You also need to seek the help of a competent financial advisor to help with the research and consult with before making any changes to your investments.
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