You’ve worked your entire life – well it seems like that – and now it’s time to enjoy your golden years. Maybe you will spend it on fishing boat or maybe you will volunteer. Either way, you want to make sure you don’t run out money in retirement.
The Fear Factor
We are living long, healthier, and more active lives. While this is good in a way, it also means that we are spending more years in retirement. As such, we will need to make sure we have enough money.
Sounds easy enough, just make more and spend less. But the devil is the details. If you are like millions of Baby Boomers you have had to live through one of the most economically volatile times in the history of our country. The boom times were great, stock markets soared, property markets soared, and unemployment fell to all-time lows.
However, the problem was the bust times. Such as the dot-com collapse and the Great Recession. Add to this the end of lifetime employment in most industries and today’s retirees have had to live through a feast or famine cycle unlike any we have seen before.
This all adds up to fear of what is needed to do when planning for retirement; and It is palpable. Even the New York Fed that today’s seniors are deeper in debt than they were at the turn of the century.
The 4% Rule
Financial planning is chock full of rules of thumb and one of them which comes into plan when planning for retirement is the 4% rule. In simple terms, this rule outlines that you should withdraw no more than 4% of your retirement savings every year to make sure you have enough money to last 30 years.
This should allow you to maintain a comfortable standard of living, and assuming your portfolio continues to grow, to stay ahead of inflation over time. However, there are times when the 4% rule might not apply. Such as, paying for unexpected medical emergencies.
As such, there is another approach to managing withdrawals from your retirement portfolio. This is called the Possibility of Adjustment (POA). This approach takes into account the stresses of unexpected expenses and helps to readjust your withdrawal schedule for the length the fund’s life.
In some cases, these spending cuts can be automatic and will depend on how you have set up your retirement portfolio with your financial adviser.
What Can be Done?
The first step is to tackle the fear and make plan for your retirement. This includes looking at how much you have saved so far, how much longer you will work, and how much you expect to spend during your retirement. Don’t forget to add inflation into the mix as well.
Once you have done this you will have an idea of how much money you will need over time and where it might come from. Granted there are times when savings won’t cut it. For this reason, more and more seniors are taking a serious look at reverse mortgages.
These loans allow seniors to tap into the equity they have built up in their homes without having to make any payments until you no longer live in your home. Granted, there are a lot of lenders offering these loans today.
But if you want to get an idea of how this loan can work for you then check out the number of lenders who offer online quotes. This way you can check out how a reverse mortgage might fit your plans from the comfort of your home.
That being said, a reverse mortgage should not be your only option for retirement. You should also consider annuities, 401k’s, and even municipal bonds. All of which will offer good returns with fairly low risk.
Having enough money for retirement is not rocket science; instead, it requires planning. Just remember that the longer you put off planning for retirement, the harder it will be to have enough money to live out your golden years in style.
So, make a plan, follow it through, and then track your expenses to make sure you have enough money to last. This way you won’t have to stress about your finances as you age.