Can I maintain a decent income through my retirement? That's the worry of most retirees. Let's obtain a point of view on what you have to manage.
Your retirement funds - apart from any retirement work you do - comes from the big three: social security benefits, pension programs (if you have any), as well as your retirement investments (e.g. IRA or 401k). The amount of retirement funds you are able to draw from these without exhausting them depends on your longevity. The figure shows that you've a good possibility of living for a longer time than, perhaps, than you expected.
Realize that life-span continually improves, so every year that goes by, your life-span will probably be even lengthier compared to the figure illustrates.
The problems you have to overcome to maintain the purchasing power of retirement funds are:
- Inflation - which generally compounds with your longevity
- Investment market and sector downturns
- Investment and withdrawal mismanagement
- Considerable health-related expenses
Social Security and some pension programs are indexed for inflation. But you'll have to preserve a retirement strategy for investing that maintains your savings - as well as your withdrawals from it - from being eroded by inflation. Observe that the publicized inflation rate understates the specific inflation rate for retirees. So if your pension plan and social security are indexed to the CPI, which say is 0% for a given yr, your own personal inflation rate may be 4%. Retirees have a tendency to spend more on items that increase in cost quicker than food and housing: health care, travel and retirement services. This of course places a strain on your retirement funds.
Increasing medical issues come as we age. Medicare may help you out for the cost of many illnesses. But Medicare doesn't cover long-term care which is very costly. Sadly, you'll by no means understand how much treatment you'll require before hand. Unless of course you are very wealthy, you will have to budget some quantity of retirement funds for long-term care insurance coverage to protect your resources.
Market and sector downturns are unavoidable over any 15 yr period - well within life span for 65-year-olds. You must broaden your retirement investments to guard against these types of factors rather than respond on an emotional level to market whims. Specifically, you must include equities in your portfolio even though they are volatile. Inability to maintain purchasing power might damage your capability to draw enough retirement funds in later years.
Make reasonable withdrawals from your retirement funds. These should permit your investments to maintain their real inflation-adjusted value at minimum. Most concur that a 4% withdrawal rate is secure and preferably, that will be sufficient to keep up the retirement funds you need. Don't get greedy. Make your withdrawals tax-efficient by minimizing withdrawals from tax-deferred retirement investments.
Always maintain adaptability and control of your money over what could be a decades-long retirement. Doing so allows you to modify to unknown expenses and life style modifications over time and generate the retirement funds you'll need.