A retirement spending strategy begins with a budget, an accurate one so that you have full knowledge of what lies ahead. At this point you should already have enough information to formulate your core budget, fixed and variable costs – housing, food, clothing etc… what you don’t know relates to expenses incurred during retirement. The government does a good job detailing these on the Bureau of Labor and Statistics (BLS) website. Do a little research to gain an understanding of what retirees ahead of you encounter.
A retirement portfolio carries you for the duration of your life expectancy. If you retire at sixty-five, plan to live until at least ninety, potentially giving you a twenty-five-year investment time horizon.
You were either financially fortunate or misfortunate during your lifetime. Things happen along the way, some incurred job losses, or health issues. But that is not cause for despair because opportunities exist for everyone.
If you have a sizeable portfolio, view social security as money to do good things with. Spend some on yourself, help others or support charity while using your investment portfolio to sustain your lifestyle.
Lacking a sizable portfolio, your social security becomes the primary means of support and your portfolio used for other purposes. You must nurture your portfolio so that it facilitates a sense of independence – make it grow and you can use some along the way to do good things.
Whether you have ample resources or not, think of yourself as a steward of your portfolio. A steward might manage it so that it never drops below the starting value, keeping ahead of inflation. This approach has an asset allocation that may never change since it is perpetual. Alternatively, a steward might refine the strategy to draw-down the portfolio to a near-zero balance towards the end of your life expectancy. This approach has a shifting asset allocation and may become more conservative as you age. Either one is a personal preference and both tie directly to your budget – you may need to adjust your standard of living to fit within yours means.
You most likely manage your own retirement portfolios. It is good to have direct involvement with your future. Hopefully, you own low-cost funds, preferably index, which helps keep your costs down. Funds expenses tend to be surreptitious, hidden from view. When net asset values (NAV’s) generate (closing prices), the expense comes off the top prior to publishing the value. You don’t really see it, but it exists and can become expensive. Keep a watchful eye on those expenses, pretend you write a check each day to the fund company, paying them for their services. It will change your outlook.
Investing may seem inundating, after all your livelihood depends on it. Primarily driven by fear and greed, it becomes important to again think of yourself as a steward, responsible to fulfill an obligation to yourself. Choose an asset allocation and stick with it while reminding yourself you cannot time the market. Leverage a tool such as Track My Portfolios to facilitate rebalancing at a time that matches your goals. It keeps investment decisions to a minimum – and decouples emotions during shifting markets.
Retirement spending is something in life that we are glad we lived long enough to reach and can approach it with some careful forethought to live comfortably in our retirement years.
Wm. A. Edwards,
Contributor