Retirement can be a difficult transition both emotionally and financially. You are changing from being an earner to a spender. After years of diligently putting money aside and carefully investing to accumulate your retirement savings, you’ll now be spending or “decumulating” those assets to fund your retirement lifestyle. That can be a difficult adjustment when you want to minimize the risk of running out of money before you run out of life.
People are living longer lives and you have a long lifetime to plan for. How can you ensure you will feel confident?
- Draw a fixed income from fixed investments. You want certainty of income especially in the early years of retirement. You want to draw your income from safe vehicles that either have guaranteed principal or are very stable. You don’t want to live on investments that are going up and down in value every year, month, or even every day. Secure your income in the early years of retirement from safe and secure sources.
- You do need growth. Don’t underestimate the need for long-term growth because you may live for 20, 30 or more years in retirement. You need your money to last. Inflation can sneak up on you and slowly erode your income. You have to be able to assess the risk you are taking in your longer-term growth investments, and make sure you are balancing risk and reward appropriately.
- Understand your plan. Looking at your retirement plan from a 30,000-foot view allows you to see how all of this fits together. This gives you the confidence that if there is a bear market in your early years of retirement that it won’t devastate you. You will have planned for the reality that there are dips in the market. The way that you set up your income plan and measure your risk provides for confidence. If you understand your plan, you won’t panic or constantly be worried every time the market takes a downturn. Markets are volatile and unpredictable, but you can build that into your plan.
The plan that gets you to retirement is not the plan that gets you through retirement. Having and understanding your retirement plan will give you the confidence to retire and live your best life.