Retire From Work, But Not Personal Financial Planning

By Andrew Beattie AAA

Saving and planning for retirement takes up a significant portion of a person's life. Even after retirement, this process must continue in order to ensure continued financial security and freedom. For many individuals, the goal is not to retire in the traditional sense of the word, but to be free to enjoy their retirement years. In this article, we provide some financial tips for retirees.

You Can't Take It With You
Some retirees have the choice of spending all of their retirement savings in controlled bursts until death or leaving some behind for their heirs. This is, of course, a personal choice for those who have enough investments to allow them to live purely off their returns, or enough savings to finance their retirement.

However, not everyone has that flexibility. For example, if you only have $100,000 saved and you need $25,000 per year to cover living expenses, you have a financial dilemma even if you have this money invested at a 10% rate of return. In six years, your savings will be gone and you will be left at the mercy of government welfare programs. Or you may have to consider a working retirement with a company smart enough to hire mature and experienced individuals. If you think this will be the case, it is time to start a stricter savings program. (To read more about working in your golden years, see Stretch Your Savings By Working Into Your 70s, Life Planning - More Than Just Money and Retirement Saving Tips For 65-Year-Olds And Over.)

Withdrawal Rate
Assuming that you have diligently saved and invested for your retirement, you will likely find yourself with a large nest egg. The question is, how much money can you take from your nest egg each year without using up the pot before the end of your lifetime? The best advice is to use only what you need to do what you want. The early years of retirement are generally the most active and expensive as far as travel and hobbies go. These are the years when you are most likely to use the most of your nest egg. If you dip too deep into your nest egg, however, you may be reducing your income for your later years, in which you are likely to have some costly medical bills on top of your regular, everyday expenses. (To keep reading on this subject, see Five Ways To Lose Your Nest Egg, Determining Your Post-Work Income and Preparing To Tap Your Income Stream.)

There is a tendency to assume that investments will consistently earn a return of 10%, meaning that if you have $400,000 socked away in investments, you can look forward to $40,000 every year without touching the base investment amount. It may be better, however, to err on the side of caution and assume a return of 4-6% - about the return of a government bond - just in case the market hits a multi-year slump. If you plan on only drawing on the earnings of bonds, then you will be pleasantly surprised when the market performs well and only slightly hurt when it doesn't.

The goal, as with any stock slump, is to wait for the market to rebound without having to sell your stocks at a loss. If you are suffering a lifestyle squeeze from the shortfall and have to use your base capital, you should start by cashing in your fixed-income investments and give the stocks as much time as you can afford to recover. (To find out how to make your retirement nest egg last, see Stretch Your Retirement Budget and Insure Your Retirement Income.)

Lifestyle Choices
What you are going to do with yourself and how much it will cost? Retired people tend to be, by virtue of a lifetime of experience, very good at keeping costs under control - that's how they were able to save enough to retire. Keeping up this habit is one of the best ways to ensure a financially stable retirement. At the very least, you will want to keep a record of your expenses to see if your expenditures are more or less than you expected. You should approach luxuries, such as a cruise or a new set of golf clubs, as financial objectives and see if you can find ways to save money for those items by cutting down on a monthly expense or finding another source of financing rather than just dipping into your retirement nest egg.

More importantly, you should keep track of whether you are doing the things you want to, rather than the things you wanted to. Some retirees who expected to be traveling the world may find themselves aching for home after their first trip, others who planned on operating a hobby farm catch the travel bug.

aPersonal growth doesn't stop at 65, so you may find your lifestyle goals changing after retirement and should be prepared to adjust your finances to accommodate such changes. This may mean taking a calculated risk and using a significant chunk of money to earn your scuba diving certificate while you have the legs for it, fully realizing that it may mean giving up something else you had planned for the future. (For tips on revising your budget, see The Beauty Of Budgeting and Retirement Saving Tips For 65-Year-Olds And Over.)

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Watch: Building An Emergency Fund

Why Stop?
Some of the happiest retirees are the ones who never truly retire. In contrast to the idea of leisurely strolls and endless golf games, there is growing number of retirees who choose to work after reaching retirement age. Their retirement allows them to find an emotionally fulfilling job that maybe wasn't an option when they had a family to support. It also allows them to make connections in a widening social circle. Besides helping combat two of the major causes of depression in seniors - isolation and lack of motivation - working after retirement provides a source of income that augments investment income. If you find a job you love and work during your retirement years, the financial aspect of your retirement planning will be much easier.

Conclusion
Although your lifestyle may change when you retire, the fundamentals of personal finance do not. You will still need to prepare a budget, control your expenses and monitor the rate at which you are using up your reserves. If you have the gumption, you should still approach luxuries with the intention of either saving for them or finding other sources of income. The vital thing is to realize that, even if retirement is the end of your working life, it is not the end of your financial life. You still need to keep your books, just like you still need to eat, sleep and dream.

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