Staying Financially Afloat in Retirement
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Staying Financially Afloat in Retirement
Living below your means
Unless you have money to burn, you will probably need to live below your means. This might be easy because you’ve already accumulated much of what you want. Luckily for us, society recognizes that retirees need to spend less, and offers discounts in many places for them.
Things To Know
- Living below your means doesn’t need to mean depriving yourself of a good life.
- You may need the discipline of a budget.
- It is important to draw down your retirement assets in a sustainable manner.
One unfortunate and necessary exception to living below your means is healthcare, because most people have the majority of their expenses in the last years of life.
Living below your means doesn’t need to mean depriving yourself of a good life. But it does mean getting your needs met through discipline and financial commitment—and a strong dose of ingenuity. Impulsive spending, carelessness, and keeping up with the Joneses will have to become things of the past. Self-reliance may take on a whole new meaning. Whatever method of frugality you choose, it should fit your lifestyle.
The B word
If living below your means is a challenge for you, then you may need the discipline of a budget. Fortunately, there are some good budgeting tools available, either as desktop applications or online applications. Even smartphones have them. Some are free, while others are inexpensive. And many of them link with your financial institution to give you a real-time view of your money. Consider one of these to help you keep your finances in order.
Sustainable withdrawal
It is important to draw down your retirement assets in a sustainable manner. For many retirees, this means a structured method such as an annuity plan, where a fixed amount of money is provided to you periodically out of an existing balance. If you have a retirement account such as an IRA or 401(k), you can elect to have a certain amount of money or a certain number of shares of stock or mutual funds liquidated and sent to you.
Some investors withdraw a certain fixed percentage of their portfolio value. The so-called 4% solution is one of these methods. It is important to know that any chosen percentage is still subject to a number of risks:
- Your asset allocation. Risk-tolerant portfolios can, on average, sustain higher withdrawals. Low-risk portfolios may not be able to.
- The ups and downs of the market. In a bad market, will you need to (and be able to) withdraw and live on less than your desired percentage?
- Inflation. Will your withdrawals stay ahead of inflation?
- Your age and sex. Volatile markets and longevity may play havoc with your retirement assets.