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Making A Fixed Income Last in Retirement

Stepping away from your income earning years and adjusting to a fixed income can be an understandably worrisome thought. Though your working years could be subject to variable pay or even pay loss, there is comfort knowing it’s possible to find another job. Once you retire, the mental and social barriers that exist in terms of reentering the workforce are quite real. In an attempt to alleviate these concerns we’ve come up with a list of things you can do to prepare for life on a fixed income and making it last.

Familiarize yourself with sequence of return risk

If you’ll be relying on a combination of defined benefit (a pension and/or Social Security, for example) and defined contribution accounts (think 401(k)s / 403(b)s) you’ll need to plan for the longevity of your dollars. One of the biggest threats to your retirement security is the premise of sequence of return risk. In summary, sequence of return risk is the risk that your portfolio will decline in your first years of withdrawals decreasing the life of the funds. You might be planning for an average rate of return throughout retirement. However, we can’t possibly predict which years will perform better than others. It’s imperative that you maintain spending flexibility in down market years, especially in your first years of distribution.

Begin to research age specific benefits

Learning about, and budgeting for age specific programs and benefits can be helpful if you didn’t reach your retirement savings goals. Learn about utility assistance programs, food assistance, and more. Even a seemingly small reduction in expense can make a significant impact throughout retirement.

Be prepared to delay drawing your social security benefits

The premise of this entire post is to ensure longevity of your retirement funds. One of the easiest ways (logistically) to increase your retirement income is to delay drawing social security. Each year you delay taking your benefits you increase your benefit by 8%. The benefit of delaying social security is two fold. Not only will your dollars/month increase you’ll give yourself a few extra years to save as you prepare for a truly fixed income.

A budget, you need one

The truth is, it doesn’t matter the phase of your life, a budget will always increase your financial stability and financial health. In pre-retirement, start tracking your spending to know for sure what it takes to support your household. You can use this budget to begin forecasting your retirement spending.

Practice, Practice, Practice

If you’ve not yet retired, there is no time like the present to start practicing living on your projected retirement income. You can use the budget in step 4 and social security projections in step 3 to begin living off of your projected retirement income. The time to live off of your fixed income is in advance of retirement, not once you’re there. Thinking you can live off of a reduced income and living off of said income are entirely different in practice. Check out our Mock Retirement course for some additional help in this space.

FINAL THOUGHTS:The secret to making income last in retirement is to make a plan. If you start tracking your spending early you’ll know how much income you’ll need in retirement. As you approach retirement be prepared to be flexible with your timeline. If the market is down, it could be in your best interest to wait for a more promising account balance. Finally, to ensure income security in retirement our team encourages you to delay taking your social security benefit. No matter if you’re planning for or are already in retirement, our team is here to help. The Your Money Line team is happy to field your retirement income inquiries. Give us a call or send us an email. We’re here to help Monday - Friday 9AM - 9 PM EST.