If the last few turbulent years has taught us anything, it’s that you have to make sure your retirement nest egg goes the distance. To do so, you need some careful planning and expert advice.
You’ve worked hard to build your retirement cushion, and now it’s time to enjoy it—but don’t use up that money too quickly.
How Inflation Impacts Retirement
Inflation has hit everyone where it hurts—in the wallet. More than 70% of Americans say they are very concerned about the impact of inflation on their retirement savings plan, according to a 2022 State of Retirement Planning study. And almost one-third don’t know how to make sure their retirement savings keep up.
Inflation is essentially a hidden fee eating into your retirement savings and potential gains from investments. Even small percentage changes may not seem like a big deal in the scheme of things, but they do add up. Your purchasing power in retirement may not cover the same services and care you get today. So as you’re budgeting for your anticipated retirement expenses (housing, food, medical care, etc.), realize that those costs will very likely be higher in the future.
How to Make Your Money Go the Distance
Every upcoming retiree wants to know how long their money will last in retirement. That’s understandable, since we don’t know how long we’ll live, what our future costs might be and what kind of returns we can expect on our savings.
These tips will help you structure your retirement fund to make your money last longer in your golden years.
Making your money last means taking a look into the future. No we don’t mean with a crystal ball (as nice as that sounds), we mean making educated expectations. Expectations such as:
- Lifespan: Longevity greatly affects your retirement lifestyle. A survey by the Society of Actuaries found that more than 60% of women and 45% of men underestimated their life expectancy by at least five years. That could obviously wreak some havoc, given the singular goal of retirement income planning is to make sure your money outlasts you—or at the very least you don’t outlast it.
- Housing: Will you be relocating in retirement? Will you eventually need long-term care like the 70% of retired Americans do? Will you move in with your children? Spend time discussing these matters with family to help predict your retirement costs.
- Lifestyle expectations: How do you want your retirement to look? Filled with travel and new experiences to tick off your bucket list? Or a more relaxed outlook spent with grandchildren and family? By taking the time to plan out your post-retirement budget, you can ensure that you’ll be able to afford the lifestyle you want.
Living Off Interest
One obvious way to ensure you won’t run your portfolio dry is to live off the interest, dividends and perhaps the capital gains on your investments and preserve the principal.
For example, many investors target $1,000,000 as the magic number for retirement. Here’s how the numbers break down.
- Earning 2% on a savings account, you could receive $20,000 in interest each year.
- Conservative stocks paying 4% generate $40,000, while higher-risk stocks averaging 10% generate $100,000 in interest.
- Bonds paying 2.87% generate $28,700 in interest each year.
You can see that living off interest in retirement depends on several factors, including how much you have saved and invested, and the amount you need to cover basic and extra expenses throughout your lifetime.
Creating a Diversified Portfolio
The rate of return you earn on savings and investments will have a large effect on how long your money lasts. There have been extended periods of time where safe investments earned a decent interest rate and periods of time where interest rates are pretty low. Same with stocks; There have been years where stocks provided outstanding returns and years where the returns were about the same as what you would get if you had stuck with safe investments.
Investors and savers create a diverse portfolio that balances various investments with different risk levels. This means combining different assets that provide varying levels of returns.
Diversification is one of the most foundational aspects of investing, and it becomes that much more important when you plan to live off interest alone. While it is the key to long-term investment success for many individuals, it often requires the help of a professional.
Smart distribution of your assets is only part of the challenge. You also need to adopt a strategy to make your income last for the rest of your life. To keep the growth engine running, it’s recommended you use a retirement-income planner with experience in stock market risks and effective tax reduction and inflation protection.
In today′s world, the importance of a well-executed retirement plan cannot be underestimated. You worked hard throughout your career to save the nest egg that will help support you throughout your retirement. By taking advantage of these four tactics, you can help your money stretch that much further.
To create your own personalized Retirement Income Plan, schedule your complimentary strategy session with an expert at CKS Summit Group. We believe professionally managed tactical stock market and non-stock market portfolios can provide healthy, long-term upside growth potential. It can also be very effective at preserving principal while allowing for a high degree of downside risk protection.