Retirement planning: How to stretch your money in retirement
Since the majority of retirees depend on fixed incomes, making retirement income and savings last is a top priority. Indeed, longevity risk – the risk of outliving your money – must be guarded against dutifully. In general, individuals should prepare for thirty years of retirement.
Some retirees only live a few years in retirement, but some may live up to 40 years and more! Given the uncertainty about life spans, it is better to plan properly and let the chips fall where they may. Fortunately, there are several effective ways of combatting longevity risk and making your money last.
Diversify your retirement portfolio properly
The rule-of-thumb is that retirees should be more conservative with their money since their savings are finite and income is fixed. However, being too conservative exposes your retirement fund to inflation risk and purchasing power risk as well. It is not prudent to be completely risk intolerant; this is where portfolio diversification is handy. This strategy helps you to preserve the real value of your money without risking it all – a win-win situation.
Minimize tax risk
Retirees already face myriad risks of retirement. As though that is not terrible enough, taxes erode their fixed pensions and incomes. The good thing is that there are tax relief options, which vary among countries or states. These should be pinpointed and exploited for the retiree’s benefit. For instance, investment in immediate annuities is a tax-free-income option. However, tax relief options must be exploited in moderation, since there may be inherent drawbacks.
Minimize expenses and expenditure
Lifestyle considerations are important in your golden years. If you do not have adequate retirement funds, world travel may not be a good idea. Retirees must examine the ways of reducing necessary expenses and eliminating unnecessary or frivolous ones. Sometimes you are the best and worst person to determine what is necessary and what is not. Those who experienced significant cuts in their retirement income should scale down their lifestyle just a bit as well.
Life after retirement is much more exciting if you look beyond what you need for financial security as you prepare for it. Mary Lloyd lays out a whole new paradigm for doing this and shows you how to assess what you really want and need--physically, mentally, emotionally, and spiritually--to make retired life the most rewarding time of all.
Monitor annual withdrawal
Many retirees may receive lumpsum payments early in their retirement. The temptation is to spend most or all of it within a short period. However, restraint is needed; in your first year of retirement, try spending more than approximately 5% of your retirement fund is not advised. Your withdrawal from your retirement fund thereafter should be well below 10% per annum – depending on prevailing market conditions.
Just as retirees should continue to plan during retirement, they should continue to save as well. No matter how small the amount, any savings is better than none. Savings suggests that instead of constantly depleting your retirement fund, you will be helping to sustain it. This can delay depletion of your life savings and would make your money last longer.
Even if your retirement income is low, it can be made to last once it is managed properly. Your standard of living could and should be adjusted to suit your means. Once you adhere to the principles of prudent financial management, your money would last in retirement.
How to Retire Happy, Wild, and Free offers inspirational advice on how to enjoy life to its fullest. The key to achieving an active and satisfying retirement involves a great deal more than having adequate financial resources; it also encompasses all other aspects of life -- interesting leisure activities, creative pursuits, physical well-being, mental well-being, and solid social support.
Related hubs on retirement
- Retirement planning: Assessing the million dollar retirement
How much does an individual need to retire comfortably? This question is the premise of retirement planning and its derivatives.
- Retirement risks: A comprehensive overview
For some retirees, retirement is an era of hope and fulfilment. For others, it is a minefield, littered with risks and pitfalls. The difference between the two groups is that one manages the risks of retirement far better than the other does.
- Retirement risks: How to protect retirement income from inflation and tax risks
Inflation and taxation erode your income at any stage of life. With retirement income, particularly fixed income, the effects are far more significant.
- Retirement calculations: Determining how much you'll spend in retirement
Estimating how much you may spend in retirement is vital in estimating how long your retirement savings will last. This information facilitates planning and would leave individuals in a better position to cover future expenses adequately.
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