How to Establish Financial Security Through Retirement
Do you want to have money left at the end of your life, or do you want life left at the end of your money? Making your retirement funds last a lifetime is one of the most important issues facing retirees today. New retirees are living longer than ever and face critical decisions to make sure that they do not run out of money in retirement.
The 60 Percent Rule
In order to cover your essential or fixed expenses in retirement, consider setting up a guaranteed income stream equal to 60 percent of your annual retirement income need. Your guaranteed income stream will consist of Social Security retirement benefits and a monthly pension, if you have one. If your guaranteed income stream falls short of 60 percent of your retirement spending needs, consider working with a financial planner to purchase an immediate annuity in order to make up the difference. You may even want to annuitize different amounts of your retirement funds at different times to give yourself a needed “raise” in your retirement income to keep up with inflation.
Keeping some of your retirement funds invested in the stock market or in growth mutual funds is a way to hedge inflation and keep your retirement funds growing. Some retirees make the mistake of investing only in certificates of deposit and find that the low interest rate of their investment does not keep up with inflation. Work with a trusted financial professional who can help you invest a portion of your retirement funds so that the funds keep working and growing for you.
Watch Your Withdrawal Rate
Withdrawing too much from your retirement funds early on is a huge mistake that increases the odds for running out of money later on. If you expect to live for 20 years in retirement, you should plan on keeping your withdrawal rate at about 4 percent to 5 percent of your retirement assets. However, if you retire early, you should decrease your withdrawal rate since each withdrawal decreases the remaining assets as well as the income and growth generated by those assets.
It will be important for you to stay disciplined regarding your withdrawal rate so that you will be financially secure for all the years of your retirement, including the later years. Therefore, living within your means – rather than looking at your retirement nest egg as something that you can tap into at will – will be critical. You will need to develop a budget and cut back on some things. Spoiling children and grandchildren with large gifts is another mistake overly generous retirees often make that can cost them later.
Seek Help in Developing a Plan
Retirement should be a wonderful time in which you are rewarded for your years of hard work. If needed, seek the help of a trustworthy financial professional to help you develop a plan that will ensure that your retirement years are golden – and financially secure.