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.
- Firecalc.com
- FinRa Retirement Calculator
- Bankrate.com Retirement Calculators
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.
6 Comments
Great post, Charlie, and I think this is a common problem. We are working hard to have enough money saved so that we can live off of the interest, to be debt free, and to still be good stewards of our money, and I think we’ll do just fine.
My in-laws are planning for their retirement, they just arrived in our country after 9 years long, but they are only here for a vacation. They just closed a deal yesterday and bought a two rental property.
Great tips Charlie! I think the being thrifty idea is a good one, especially if you’ve lived that way prior. You don’t want to take your foot off the pedal just because you may be retired so I’d continue to stay thrifty. If possible, I’d also look for low key ways to bring in some additional income. Maybe not a job per se, but maybe freelancing or other side gig type jobs to help supplement your income on your time. Love the SNL clip!
Before we retired we tracked out spending for about 2 years to make sure we could afford to live on our pension. If you can’t live on your current paycheck, you will not be able to live on pension or Soc. Sec. unless you have another source of income. In addition to our pension we have a Thrift Savings plan, IRAs and other investments in taxable accounts. We live on the pension and use the earnings in the other accounts (we haven’t taken IRA distributions yet) for the fun stuff like travel, which we don’t completely use every year and is therefore reinvested. It is our goal not to invade principle and since the yield on other investments pretty much equals the pension amount, our accounts are growing instead of being drawn down.
My dad is 63 and still working like crazy because of this fear. I think it’s important to think about what you’re going to need going forward, but letting it keep you from enjoying your life before you die is also a problem.
That’s a good point + i’ve never met anyone retired who has started ‘living on the hog’ as Charlie put it. Saving money is essentially putting off spending money, tbh i have a fear of being so frugal my whole life i acquire wealth and never enjoy myself or spend it because of the fear of not having money. That i’ve seen alot of in older people – frugal habits are ingrained regardless of whether they are necessary.