Many people worry about running out of money during their retirement—and with people living longer than ever before, it’s a relevant concern. However, there are ways to prevent outliving your savings and put your mind at rest.
Americans aren’t the best at saving for retirement. And it gets worse when it comes to figuring out how much to spend once they get there. In fact, roughly two-thirds of adults said they don’t know how much they should save for retirement or how much they could afford to spend, according to survey results by MoneyRates.com.
So now retirement is fast approaching, how do you make sure you can enjoy retirement, while avoiding running out of money? Here are seven suggestions to help you generate income in retirement and finance the rest of your life.
First things first. BEFORE you get to your golden years, you need to make a retirement budget. In this budget, begin with anticipating expenses. The most realistic way to calculate this is by looking at what you’ve spent in the last 12 months. (If you don’t track your expenses now, your credit card issuers may offer a year-end summary of your charges to get you started.) Then adjust those expenses for what might change in retirement. For example, work commute expenses won’t be relevant once you’re retired. On the flip side, add foreseeable expenses such as those house renovations you’ve been wanting to tackle. Finally, add an emergency budget on unforeseeable costs such as your car breaking down or a leaking roof.
Don’t overlook health care surprises, either, especially if you plan to retire early; According to Fidelity, a 65-year-old couple retiring this year can expect to spend $295,000 in healthcare and medical expenses throughout retirement.
To help get you started, check out CKS Summit Group’s recommended Retirement Calculators here.
Knowing whether you’re withdrawing money too quickly from your nest egg can be tricky: You don’t know how many years you’ll live in retirement, and you can’t count on earning the returns that we’ve enjoyed in the decade-long bull market.
The answer is to withdraw carefully and in a measured way. Watching the markets and withdrawing with caution means if your account drops in value, you won’t necessarily run out of money.
One popular guideline is “the 4% Rule”. This rule recommends retirees draw 4% from their portfolio in the first year of retirement. Then they adjust the dollar amount annually by the previous year’s rate of inflation. So with a $1 million portfolio, your withdrawal in your first year of retirement would be $40,000. If inflation that year goes up 3%, the next year’s withdrawal would be $41,200. If inflation then drops to 2%, the withdrawal for the following year would be $42,024.
But beware, as there are many flaws with this rule. For example it came about in the mid 1990s as the result of a study conducted by financial advisor Bill Bengen. But what if conditions are different from the time period he studied? For many retirees, it is not good enough to assume they will spend money in a linear fashion the rest of their golden years. Not only do they need to adjust to the market, they may wish to spend different amounts in different years. Withdrawing 4% denies one the flexibility to do this.
Some strategists recommend changing your withdrawal rate from year to year in order to match the market. However, this kind of forecasting and attention could be difficult for retirees to follow.
You could work to change the makeup of your portfolio. Looking at other financial instruments could provide you with a more stable stream of income.
Most people nearing retirement don’t consult a financial advisor, and only about half try to calculate how much money they’ll need to retire comfortably, according to surveys by the Employee Benefit Research Institute.
By hiring a retirement income advisor, you’ll gain invaluable insights into tax-smart strategies, portfolio management, investment strategies and much more.
At CKS Summit Group, our focus is to bring you fresh new ideas for your retirement income. Our cutting edge tactical portfolios help our clients achieve safe, healthy growth of their savings and preservation of their principal balance.
We design plans which are specifically structured to limit downside stock market risk. This allows us to protect our client’s assets while providing them with strategies for achieving effective tax reduction and inflation protection.
Come experience the new evolution of Retirement Income Planning. Contact us here today to set up your complimentary strategy session.