If you are thinking about retirement, one of your biggest questions is how to make sure your nest egg lasts as long as you do. Even if you aren’t going to retire for another 10 years, you might be worrying about being behind schedule on the savings front. Two steep market declines over the last 11 years and a deep recession thrown in have a way of creating a lot of fear for people thinking about retirement. No fear, my friends.
If you run your financial plan and you determine that you’re not going to have the amount of income you’ll need to retire, you still have a few options.
One alternative of course is to simply reduce your annual retirement withdrawals by making permanent cuts in your retirement lifestyle. This may be very difficult to do. I believe that a better option is simply to delay tapping into your retirement account for a year or two.
Before you pooh-pooh this idea, give me a chance to explain. One or two years of extra work can make all the difference when it comes to your retirement income. This maneuver helps in two ways:
First, your retirement investments will have higher balances. And second, you won’t need to rely on your retirement income for as many years. Win-win!
This doesn’t mean you’ll have to continue working for two years longer. I’m simply suggesting that you delay using your retirement accounts to create retirement income for a couple of years. You might be able to do so without working, or you may have to work. That will depend on your own situation. Let’s look at a real example.
Assume you are 65 now, you have $1 million in the nest egg and you want to draw $60,000 each year in retirement. Assume you also want to bump up your withdrawals by 3% every year to adjust for inflation. According to Investor’s Business Daily, your plan blows up in 22 years even though you invest in growth mutual funds. That’s because you run out of money, and it’s back to work at Flippy Burger for you – at 87 years of age. Ouchie.
If you simply push back dipping into the nest egg by two years, your account will last another six. That’s because your balance will be $1.12 million when you start taking withdrawals.
Looking for more ways to stretch the nest egg? How about getting just 1% more on your investments? If you’re able to do that, your money lasts for a total of 35 years.
And of course, the final retirement nest egg stretch is to dip in less. By starting a fun weekend business when you retire or by getting a second job now and holding on to it, you create more income and therefore less of a drag on your retirement investments. If this isn’t so appealing to you, make minor cuts in your spending and you’ll achieve the same thing.
What can you learn from this?
First, you don’t have to be a victim of your investments. There are plenty of strategies you can implement to overcome the impact of tough economics. You don’t need an all-or-nothing approach either.
- Make minor cuts in spending.
- Pay a little more attention to your investments and make sure they are the best retirement investments possible.
- Increase income now or in the future.
- Delay digging into the nest egg.
You can mix and match all five. Going at it this way, your lifestyle won’t change much and you’ll have a lot less to worry about down the road.
How are you going to stretch your retirement nest egg?