Financial advisors generally recommend aiming to replace 70% to 80% of your pre-retirement income through savings, investments, and pensions. For most people, a slightly reduced income allows them to retain their current lifestyle since many of their expenses, including 401K contributions and work-related costs, will be reduced. Retiring with a comfortable amount of savings is an excellent goal to achieve, but it’s important to make sure the savings will last as long as you need it. The following are 4 ways to keep from burning through your retirement savings too quickly.
Plan For Health Changes
People are staying healthier longer these days, and many people retire in excellent health with few if any chronic or serious health problems. However, people are also living longer than ever and are likely to need some form of care at the end of life. You can look at brandycare.com to see an array of options for seniors, including independent living in a retirement community, assisted living, and memory care. Other healthcare costs, including doctor visits, medications, and hospitalizations, are likely to go up as well. Thus, when spending your retirement savings, make sure to budget for future needs.
Withdraw Less Than 4% Each Year
In the past, the 4% rule was standard: retirees should not withdraw more than 4% of their savings per year. Nowadays, however, the prevailing wisdom is that 2.8% or even less is a more realistic target. The amount of money you can safely spend is determined by many factors that are hard to predict or control. One of these, of course, is the number of years you’ll need to rely on the money. Other factors include inflation and changes in the stock market.
Avoid Taking On Any New Debt
After spending your adult life using credit for mortgages, car loans, and other expenses, it may seem natural to continue those practices in retirement. However, taking on debt is one of the surest ways to burn through your retirement savings too soon. Instead, experts recommend making it a priority to get rid of any existing debt and avoid using credit for any expense you can’t pay off at the end of the month. If it becomes absolutely necessary to take out a loan, bear in mind that fixed loans are safer than variable ones.
Be Careful Not To Overspend On Luxuries
Many people look at retirement as a reward for years of hard work, and they want to enjoy the luxuries they denied themselves during their working years. Even though living expenses should be lower for retirees, about half of all households actually increase their spending in the first two years after retirement. In many cases, people are spending money on bucket list items, like that golfing trip to Scotland they always dreamed of. While it’s important to enjoy life in retirement, it’s also crucial to make sure your savings will last as long as you need it.
Retirement is the beginning of a new phase of life, and it’s a phase to greet with optimism, especially if you have been saving for your retirement over the years. With careful planning and budgeting, you can preserve your nest egg and enjoy many years of financial freedom. It’s never too soon or too late to make a plan for your retirement savings.
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