If you are nearing your retirement age, you are probably looking forward to stepping out of the rat race. After working for more than a couple of decades, you deserve to not only get a good rest but an opportunity to live the remainder of your life in comfort.
Now that you’re at this point, there must be a lot of things that you are planning to do. But everything has a cost, and since you are about to leave the job market, it can be scary to spend since you won’t have a regular monthly income in the future. After all, if the money just keeps on flowing outwards, your little nest egg may eventually run out.
Nevertheless, this is also not a reason to keep yourself from living the kind of retirement that you have always wanted. Here are some steps that you can take to help you achieve the retirement life of your dreams:
Make A Retirement Roadmap
You may think that it is too late to do this now, but you do need to start somewhere. Having no clear idea of what you want to do, including the answers to when, how, and why will only increase your anxiety about the uncertain future.
To give yourself assurance, you need a roadmap for the kind of life after retirement that you want. Write down everything you want to do, and set aside for future consideration whether you can afford them or not.
If you already prepared a roadmap in your younger years, it may need to be updated as your preferences have likely changed since then. When you list down your plans, include your goals as well, because your retirement is a start of a new life and deserves its own milestones.
Estimate the Costs
While it is difficult to know the exact prices of commodities in the future, you can set estimates based on the inflation prices from the previous years. For example, the average inflation rate in the US for the last 100 years was 3.5%. You can use this as a benchmark for your cost estimates and add a little buffer to allow for more price fluctuations.
Make sure to account for not only your target big-spending like out-of-the-country trips or a new car, but also your daily expenses like housing, food, clothing, entertainment, and healthcare. Allocate the same amount that you used to spend pre-retirement but leave more breathing room for medical expenses.
You then need to break down your expenses into monthly disbursements, taking into consideration both your needs and wants. This will be your expected monthly withdrawals, give or take some unexpected spending for emergencies.
Take A Look at Your Finances
Once you have a clearer picture of your monthly and annual spending in the future, it is time to take a look at the value of the assets that you were able to save up to this point. For you to outlive your portfolio, your asset value along with its compounding interests should be greater than your withdrawals.
Check your current investments and estimate how much you are likely to earn on a monthly and annual basis. When looking over your investments, make sure to account only for the after-tax value. Keep your projected rates of return on the realistic side, which is usually lower than 10% before taxes.
Some of your tangible assets can also be converted into cash which can help subsidize your retirement plans. For example, you may want to get a reverse mortgage for your house and use the funds to supplement your daily expenses, purchase the big-ticket items in your retirement plan, or add to your investment portfolio. Try using a Reverse mortgage calculator so you can get a better idea of how much additional cash you can generate from your home.
Grow Your Current Assets
Once you stop working and are no longer receiving a steady income every month, you need to be more careful with your investment choices. You cannot afford to take big risks anymore because you don’t have an income that could cover your losses.
However, it doesn’t mean that you have to stop all your investments and stay liquid for the rest of your life. You also need to grow your assets in order to support your continuing expenses. It’s just that your investment goals should change along with your new status. While you were mostly pushing for portfolio growth during your younger years, you should be aiming for a mix of growth and income this time around.
Doing so will protect your capital, which will prevent you from running out of money during your retirement. As such, consider going for lower risk investment options such as annuities and certificates of deposit. If you want to enter the stock market, go for the blue-chip companies which are less likely to fluctuate and also pay out regular dividends.