Since there is no book with all of the answers telling us how long we will live or what tomorrow will bring, it’s understandable to have questions and concerns about the road ahead.
Whether you are currently retired or just starting to think about what your retirement years will look like, the question "Will I outlive my money" is most likely a top concern. Thankfully, there are several ways you can increase the odds that your finances will last as long as you do in your golden years. Here are a few concerns to keep in mind while building your plan.
Have a Retirement Spending Plan
Similar to a budget, a spending plan helps you understand how much income you will need to live the lifestyle you want in retirement and allow you to do the activities you enjoy such as traveling, shopping, or just hanging poolside. Having a plan that is well thought out and holistic will help you establish the details of what you’d like to be able to afford during retirement. Working with one of our financial planners during this time can help you understand how to support the retirement you’ve always dreamt of.
Without a proper spending plan in place overspending can and most likely will occur. This is a common occurrence during retirement years, and is similar to overspending in younger years, with the biggest difference being that many of us are unsure or aware of how to properly plan our income during that time.
For many choosing a withdrawal rate in retirement such as 4 percent is considered to be a good starting point. For example, if you saved a million dollars for retirement, the 4 percent rule would have you expecting to earn approximately $40,000 a year in income off your saved retirement dollars, not including any funds from Social Security.1
Unfortunately, many recent studies have shown that this general rule of thumb no longer works due to a concept called Sequence of Returns Risk. We use the consumption method instead and we have found it to be a much more accurate method of determining retirement income needs.
Take Control of Your Savings
When it comes to funding your retirement, most Americans use a combination of Social Security, savings, and pensions. It’s important to set yourself up for success and think outside of the box since these details may have a huge impact down the line and is a key aspect to having your retirement meet your expectations.
Being thoughtful about the structure of your assets and the details of your income now, as a pre-retiree, will help you maintain your wealth in the long run and throughout your retirement. Remaining in control of your finances and always being aware of things like how much you’re spending or how taxation will play into your retirement plan, will ultimately allow you to focus your time and energy on the experiences that matter most to you.
If you’re passionate about your career, enjoy what you do and it's not too physically demanding, you may benefit from waiting to retire. Not only does staying involved increase your overall standard of living, but if you’re healthy enough and willing to continue working, delaying your Social Security benefits could drastically increase your monthly benefit amount.
This will also allow your retirement assets to have an extra year to expand and strengthen. On the heels of the COVID-19 pandemic, this can be a very important piece of your retirement strategy. Ultimately, allowing your wealth to rebound or grow for an extra year or two could go a long way to helping your money last in and through retirement.
You may also want to consider transitioning out of the workforce slowly. If you have the ability to take on less responsibility or even work part-time, you may find that continuing to work is less of a chore and it could have a big impact over the long run.
Protect Your Health
It seems as though healthcare costs continue to skyrocket on a daily basis and as we all know, being sick can become quite costly. In fact, it is one of the biggest risks to you in your retirement. Making healthier choices throughout our lifetime can help reduce the odds of suffering from conditions such as diabetes, high blood pressure, arthritis, or other chronic illnesses, in turn lowering healthcare expenses.
As we grow closer to retirement, it’s important to take into account that spending money on a healthy lifestyle, as well as receiving regular screenings and accurate medical care, can help improve quality of life. Spending a sufficient amount on preventative care now can be beneficial to lowering more costly expenses in the future.
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|About the Author|
James M. Comblo , CFF
is a Partner and the Chief Compliance Officer at FSC Wealth Advisors. His greatest passion in the financial services industry is helping clients accomplish their dreams both with investments and their personal lives. To learn more about him click here.
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