Planning for retirement is crucial if you want to ensure you won’t outlive your money. This involves creating a plan to make your money last for the rest of your life, no matter how long you live. The first step in this plan is to ensure that your income exceeds your living expenses. Additionally, continue investing throughout retirement and build and manage an emergency financial fund to cover unexpected expenses.
Managing your expenses in retirement is key to ensuring you don’t overspend and outlive your savings. Instead of using your retirement savings as a checking account to pay for living expenses, set up retirement paycheck generators to generate monthly paychecks that will last your lifetime. By managing your spending this way, along with other sources of income like Social Security and pensions, you can ensure that you won’t outlive your money.
It is important to determine the total amount of living expenses you can afford based on all sources of lifetime retirement income. Knowing this target amount will help you identify where you can reduce spending if necessary. By separating your “must-have” living expenses from your “nice-to-have” expenses, you can prioritize what expenses you can reduce, such as downsizing to lower housing expenses.
Building a diversified portfolio of lifetime retirement income is crucial in managing your income during retirement. This portfolio should include Social Security, pensions, and the monthly paychecks generated from your retirement savings. By carefully planning the amount of retirement paychecks through systematic withdrawals or purchasing a lifetime annuity, you can ensure a steady income stream to cover your expenses.
Coordinating your investment strategy with your retirement paycheck plan is essential to protect against inflation. While having risk-protected income sources like Social Security and pensions can cover essential expenses, consider investing remaining savings in the stock market for potential growth. Low-cost stock index mutual funds or ETFs can be effective investment options for most retirees.
Maintaining a liquid emergency fund separate from your retirement investments is crucial to cover unexpected expenses in retirement. Instead of following conventional rules of thumb for emergency fund amounts, consider the types of surprise expenses you may encounter in retirement, such as house repairs or uninsured health bills. By having a well-thought-out money management plan in place, you can enjoy your retirement years without financial stress.
