Are you in retirement, and have come to one of these self realization moments where you suddenly realize that you'll more than likely run out of money before you die? Or have you had a nightmare where your portfolio manager tells you that you will more than likely outlive your nest egg? It's at that point where you wake up in a cold financial sweat and hope it isn't true.
Whether you are in retirement or even trying to figure out if retirement is even possible, running out of money will be a constant worry for most lower and middle class families.
In order to combat this fear or anxiety it takes a lot of management and know-how to continually stay on top of your nest egg. Balancing between withdrawal rates and investment losses/gains is like a full time job. For people retiring with little room for error it can create a lot of problems in retirement if they aren't careful and don't manage their finances diligently. Here are a few tips to help you along the way:
- Set your withdrawal rate – typically most withdrawal rates will vary anywhere from 3.5% – 4.5% in order to not chip away a the principal. Most folks in retirement keep pulling money out of their retirement accounts without really looking at how much they are withdrawing per year or how much they'll have going forward. It is extremely important to set a fixed withdrawal rate, and not outlast the principal.
- Set mile markers – in running a marathon it is important to have mile markers along the way to know if you are on pace with your end goal. The same is true of planning continually throughout retirement. Figure out how much money you have at the end of each year, and how long that'll last you. Withdrawal rate calculations aren't a one time deal. You might need to adjust your retirement plans if the market tanks or if your expenses are higher than expected
- Keep being thrifty – getting to retirement often feels like you've just graduated from college and you are entitled to “live high on the hog”. People will forget their thrifty ways, and spend for the now. After all, you've spent your lifetime saving – now is the chance to enjoy it!
- Utilize retirement forums – right out of college I quickly took to a lot of the online financial forums to seek out others opinions. Here are few that I recommend:
- Use online calculators – here are a few helpful online calculators that I use.
Hopefully these are a few helpful tips to help you in your retirement planning. I'd like to hear what resources you use to plan for retirement and ensure that you are on track.