Can you go broke in retirement?


With some careful planning and saving, you can ensure a comfortable retirement.
With some careful planning and saving, you can ensure a comfortable retirement.
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You've saved diligently and invested wisely, and now you're ready to say goodbye to working life. Retirement is here! Careful planning is the key to a comfortable retirement, and that planning doesn't end when you leave the workforce. Now that you're living off of investments, savings and Social Security, it's more important than ever to watch your money carefully. If you manage your investments well and focus on living within your means, you're unlikely to go broke during retirement.

Before you give that final notice at your job, it's a good idea to sit down with a financial advisor to go over your budget, savings, investments, Social Security benefits and planned withdrawal rate. A good advisor can help you crunch the numbers and make sure you're ready to retire. He can also help you sort out a reasonable monthly budget based on the expected length of your retirement.

Now that you're relying more heavily on your investments, you're going to want to keep a much closer eye on them. The stock market has natural ups and downs, and you might want to look at moving more of your funds to conservative investments, or even a savings account, so you'll be able to weather those small financial storms. Also, you don't necessarily want to move your money just because a stock dips. Look at a company's long-term performance and try to decide if it's worth selling at a loss or if this is just a momentary blip. It's not a bad idea to check in with an advisor from time to time during retirement to look over your portfolio and make adjustments to it, as well.

It's important to manage your withdrawal rate to make those savings last. Sure, it's tempting to take out a higher amount each month, but make sure you're thinking about the big picture here. How long do you anticipate enjoying retirement? 20 years? 30? Sticking to a withdrawal of around 4 percent per year might feel overly frugal, but it will help ensure that you don't run out of money [source: Weston].

Next, let's look at how you can adjust your lifestyle to maximize your nest egg.

Frugal Living

Creating a budget is great, but sticking to it is the tricky part. You want to have fun in retirement, but you also want to be sure you're not blowing through your savings too quickly. Many retirees face running out of money, and taking measures to live frugally from the start can help you avoid that situation.

Now that you have a realistic budget sorted out, you'll need to figure out how to live on that monthly income. If you still have high-interest debts when you retire, you're going to want to focus on paying those off as soon as you can. Getting debt off your shoulders can free up money to reinvest or to make your retirement more comfortable.

There are more places to save money than you might think. If your budget is lean, you'll need to cut back anywhere you can. Do you still need a big house? Are you hanging on to more than one vehicle, when you could pare down to one or even none? Once you've cut back on bigger expenses, you can also take a look at smaller items, like your cable and phone bill, to make sure you don't nickel and dime away that monthly budget.

Have you cut back everywhere you can, but it's not enough? You can work part time after retirement age and still get your full Social Security benefits. There's no shame in taking a part-time job, and you might even enjoy the chance to get out of the house and socialize. Many retirees, especially baby boomers, are taking part-time jobs during retirement to earn some extra cash, and they often find that it's a great way to fill their days.

While it is possible to run into money troubles in retirement, if you plan carefully, budget and save, you'll be in much better shape for a comfortable post-workforce lifestyle.

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Sources

  • Guina, Ryan. "10 Retirement Myths." U.S. News & World Report. Nov. 25, 2010. (Jan. 13, 2010)http://finance.yahoo.com/focus-retirement/article/111411/10-retirement-myths?mod=fidelity-buildingwealth&cat=fidelity_2010_building_wealth
  • Social Security Administration. "How Work Affects Your Benefits." January 2011. (Jan. 13, 2010)http://ssa.gov/pubs/10069.html
  • Updegrave, Walter. "Making $300,000 last a lifetime." CNN Money. Feb. 2, 2010. (Jan. 13, 2010)http://money.cnn.com/2010/02/02/pf/expert/lifetime_income.moneymag/index.htm
  • Weston, Liz Pulliam. "7 stupid retirement myths exposed." MSN Money. (Jan. 13, 2010)http://articles.moneycentral.msn.com/RetirementandWills/CreateaPlan/weston-7-stupid-retirement-myths-exposed.aspx
  • Weston, Liz Pulliam. "Making your money last in retirement; 5 keys." MSN Money. (Jan. 13, 2010)http://articles.moneycentral.msn.com/RetirementandWills/RetireEarly/MakeYourMoneyLastInRetirement5keys.aspx