Can I maintain a decent income through my retirement? That's the concern of most retirees. Let's get a perspective on what you have to handle.
Your retirement income - aside from any retirement work do - comes from the big three: social security income, pension plans, and your retirement investments. The amount of retirement income you can draw from these without exhausting them depends on your longevity. The figure shows that you've a good chance of living longer than, perhaps, you expected.
Note that life expectancy continues to increase, so each year that passes, your life expectancy will be even longer than the figure illustrates.
The challenges you must overcome to maintain that retirement income are
- Inflation - which goes along with your longevity
- Investment market and sector downturns
- Investment and withdrawal mismanagement
- Significant health-related expenses
Social Security and some pension plans are indexed for inflation. But you'll have to maintain a retirement investment strategy that keeps your savings - and your withdrawals from it - from being eroded by inflation. Note that the published inflation rate understates the actual inflation rate for retirees. So if your pension plan and social security are indexed to the CPI, which say is 0% for a given year, your personal inflation rate might be 4%. Retirees tend to spend more on items that increase in price faster than food and housing: medical care, travel and retirement services. This of course places a strain on your retirement income.
Market and sector downturns are inevitable over any 15 year period - well within life expectancy for 65-year-olds. You must diversify your retirement investments to protect against these factors and not react emotionally to market whims. Failure to maintain this nest egg could impair your ability t draw sufficient retirement income in later years.
Make reasonable withdrawals from your retirement investments. These should allow your investments to maintain their real value at minimum. Most agree that a 4% withdrawal rate is safe and hopefully, that will be sufficient to maintain the retirement income you need. Don't get greedy. Make your withdrawals tax-efficient by minimizing withdrawals from tax-deferred retirement investments.
Increasing health problems come with age. Medicare can help you out for many illnesses. But Medicare doesn't cover long-term care which is extremely costly. Unfortunately, you'll never know how much care you'll need before hand. Unless you're very wealthy, you'll have to budget some amount of retirement income for longterm care insurance to protect your assets.
Always maintain flexibility and control of your money over what could be a decades-long retirement. Doing so allows you to adjust to unpredictable expenses and lifestyle changes over time and generate the retirement income you need.
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