Our topic on this episode of the Ready for Retirement podcast is about understanding how to plan for longevity without sacrificing the “Good Years”.
Questions answered: What are the best strategies to ensure I don’t outlive my money? How can I use my finances to ensure I’m maximizing my different goals (pre-retirement and post-retirement)? What is the best approach for my individual situation?
Are you ready to start focusing on the things that truly matter when it comes to your financial future?
Episodes Mentioned
Episode 12 : Countdown to Retirement: Do You Have Enough Money?
Episode 27 – How Much Can I Safely Spend In Retirement?
Episode 68: How Much Do People Actually Spend In Retirement?
Key Points
- Longevity Risk
- How do you balance the risk of outliving your money while understanding you don’t want to die the richest person in the grave?
- Financial Risk
- Nobody knows how long we’ll live, where the best thing we can do is understand the risks and what our options are.
- Understanding Expenses
- Your spending is a reflection of the lifestyle you want to fund once you step away from work.
- Retirement
- If the goal is to retire and enjoy what you’ve built, think about what you want to do in retirement.
- Travel, second home, family time, charitable giving, etc.
- Once the goals are determined, it’s about finding what it costs to achieve these goals.
- Understanding your expenses allows you to craft a financial strategy.
- To understand if you are in a position to retire, refer to Episode 12 : Countdown to Retirement: Do You Have Enough Money?
- If the goal is to retire and enjoy what you’ve built, think about what you want to do in retirement.
- Trade Offs
- What are your goals?
- Are you willing to spend less to step away from work earlier?
- This allows less pressure/strain to be placed on your portfolio.
- Would you rather maintain spending and work extra years?
- Are you willing to spend less to step away from work earlier?
- What are your goals?
- Non-traditional Tradeoffs
- What if you want to stop working and you want to maintain spending?
- Do you move to a different state?
- Do you position your investments differently?
- Do you utilize your home in a way to generate income?
- What if you want to stop working and you want to maintain spending?
- Protecting Against Longevity
- Delay Social Security
- View Social Security like a pension or an annuity
- This is an income you will not outlive.
- View Social Security like a pension or an annuity
- Work longer
- The longer you work, the more years of savings, compounding, earnings for Social Security, and one less year of having to draw from your portfolio.
- Work part-time
- Part-time work can have a profound impact on the longevity of your portfolio.
- Is it worth working 1 more year in a high-stress and high-paying job or do you work 3-5 years in a less stressful position?
- Spend less
- The less you spend, the more that stays in your portfolio and allows for compounding.
- Savings
- Are there additional retirement contributions you can save?
- Annuities
- Purchasing an annuity guarantees income, but you’re sacrificing how much income you could particularly spend.
- You’re giving money to an insurance company that pays you an income you can’t outlive.
- Many annuities don’t have inflation-riders and it’s worth doing your homework.
- Purchasing an annuity guarantees income, but you’re sacrificing how much income you could particularly spend.
- Contingency Plan
- Do you want to sell your home and use the proceeds to live off of?
- If “X” happens, I’m willing to do “X”.
- Delay Social Security
- Maximizing Your Situation
- Consider not having more in bonds than you need that allows your portfolio to grow.
- Ensure you manage your portfolio well in retirement.
- Refer to Episode 27 – How Much Can I Safely Spend In Retirement?
- This episode discusses how much you can safely spend in retirement while ensuring your funds are growing.
- Implement Tax Planning
- Understand RMDs (Required Minimum Distributions) and how to maximize your after-tax income in retirement.
- Insurance & Protection
- Catastrophic events
- Do you have the right Medicare insurance?
- Do you have Long-Term Care if you need it?
- Do you have life insurance?
- Catastrophic events
- Social Security
- Should I take a survivor benefit?
- When’s the best time to collect?
- Alternative strategies
- Is there inheritance worth factoring in?
- Retirement Spending
- 4% Rule
- 4% Rule Example:
- Assume you have $1,000,000 going into retirement and you take $40,000 pre-tax out.
- This $40,000 gets a 3% increase throughout retirement.
- This research has a 30-year time horizon and we want to ensure our assets are positioned to last us more than 30 years if we anticipate life expectancy may be beyond that.
- 4% Rule Example:
- Alternative Approach
- How do you preserve the purchasing power of your portfolio over 40 years?
- Increase initial spending between 5.2% – 5.6% assuming you have the right portfolio composition.
- Using this same example, you can generate $52,000 – $56,000 and your portfolio could last you 40+ years as opposed to using $40,000.
- For additional information on this, refer to: Episode 27 – How Much Can I Safely Spend In Retirement?
- Increase initial spending between 5.2% – 5.6% assuming you have the right portfolio composition.
- How do you preserve the purchasing power of your portfolio over 40 years?
Timestamps
1:08 – Listener Question
2:22 – Longevity Risk
4:50 – Purpose & Meaning In Retirement
8:21 – Understanding Your Options
11:00 – Am I On Track For Retirement?
15:51 – Longevity Protection
16:45 – Ensuring Proper Protection
17:57 – How Much Can I Spend?
20:31 – Retirement Smile
21:04 – 4% Rule
24:49 – Aligning Your Investments With Your Financial Goals
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