After all those years of saving, investing and planning its finally time to retire. But what is it that those who successfully planned for the long term do to ensure their funds last for the duration of their retirement?
Consider these strategies:
- Sacrifice current consumption for future comfort
It is quite easy to spend our resources freely. One strategy that is a sure winner is to stave off some of our consumption and start saving as soon as possible. Even if the savings are modest, start as early on as possible. It is a good habit to get into, and compounding can significantly grow your retirement assets.
Falling into the consumption trap can kill anyone’s chances to make it through retirement. It is tough enough to save what’s needed for retirement. Poor spending habits are a key factor. Those trying to save enough to retire would be wise to remember that their future selves will appreciate their restraint in their younger years. It’s a simple concept, but often hard to execute. It requires discipline and a long-term focus on one’s goals. Have a budget, take a few less vacations, have a few less dinners out per month, only spend on possessions when necessary, and most important, never spend above what your budget allows.
- Avoid the debt trap
Since the Great Recession of 2008, most people are more aware of just how devastating carrying too much debt at the wrong time can be. n. Carrying too much debt can substantially increase the annual drawdown on investment and retirement assets, creating a higher likelihood of outliving one’s assets. This includes mortgage loans, credit cards and car debt.
3. Don’t Forget About Inflation
Even with a 3% average annual inflation rate, the purchasing power of a dollar will fall by more than half, after 25 years.
As you spend down your retirement savings, inflation is costing you more money to live. Retirees should understand the long-term cumulative impact of inflation on their assets during retirement.
4. Have a Realistic Expectation of How Long You’ll Live
You could try the calculator from the Social Security website, but it will only give you an “average” life expectancy, and the problem with that is if you used that number for your planning, you could have a 50% probability of outliving your savings.
So, what are the alternatives? Here are a couple of options. One option is to make your best judgment of your life expectancy projection based on your health, family history, etc. After all, no one knows your situation better than yourself! Otherwise, use tools such as the livingto100 calculator (https://www.livingto100.com/), which takes your ethnicity, family history, health habits, etc., into consideration and generates a more customized life expectancy for you.
Our experts are available to help you as you enter this important stage of life. For more information or guidance, please send an email at firstname.lastname@example.org.
The information provided is for educational purposes and for your independent consideration. It does not contain, constitute, or provide individual tax, financial, or investment advice. Moreover, said material should not be considered as a recommendation of any particular security, strategy, or investment product or service. Investments or trading strategies should be evaluated in relation to each individual’s objectives and risk tolerance. Readers are urged to seek professional advice regarding their specific financial, legal, tax, and investment matters. Investment products are not insured by the FDIC, are not deposits or obligations of and are not guaranteed by Banco Popular de Puerto Rico or its subsidiaries or affiliates and may lose value.
Copyright © 2021 The Kiplinger Washington Editors. All rights reserved.
Distributed by Financial Media Exchange.