For Mark Roberts’ Use: When you’re on the cusp of retirement, it’s time to kick your retirement planning into high gear. At this point you will confront a situation quite unlike any other in your lifetime: You will decide how much income you can “make” each year (taken from your retirement savings).
On the other hand, you’re also the one “paying” yourself! So at this point you will have to weigh your need for income against your need to preserve your savings. It’s possible that you have never before been on both sides of the bargaining table!
Planning your retirement budget will boil down to two important questions:
- How much will you withdraw from your savings each year?
- How much investment risk can you handle, to preserve your funds while also encouraging growth?
How much will you withdraw? The answer to this question will come down to how much money you need each year, to cover lifestyle expenses, and how long you want your money to last. Many people decide upon a percentage, usually ranging between about 3 and 6 percent. Obviously the 3 percent crowd are more conservative, while the 6-percenters want a more generous budget (and are willing to risk depleting their funds much more quickly).
How much risk can you handle? Throughout your working years, you might have grown your assets by investing more aggressively. As you retire, it’s time to reevaluate that risk. Continued growth in your funds can extend the availability of retirement funds. But losses will bring about the opposite result. So, you will balance your risk with the amount of income you need each year, and with how long you anticipate needing it.
There are no right or wrong answers to these questions. But as you can see, planning your retirement budget will involve a complicated dance between all of these factors, to arrive at a strategy that balances your own needs and values. We can help with that part. As you approach your target retirement date, make an appointment with us to discuss these issues. We can help you identify your priorities and evaluate the risks, and help you arrive at answers to your questions.
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