After years of working hard and investing in your retirement nest egg, you want it to last as long as necessary. Longer life expectancies, inflation and the cost of health care can make this difficult. Fortunately, there are steps you can take to help ensure that your savings see you through your retirement.
Plan for the Future
Creating a budget before retiring is crucial. Many experts suggest that workers expect to spend anywhere from 70% to 80% of pre-retirement income for a comfortable retirement; others put this figure closer to 100% of annual income. Consider your future housing, transportation, clothing, entertainment and medical costs to begin creating a realistic budget. To help prevent unexpected, sizable expenses from wreaking havoc on your plans, consider purchasing supplemental health coverage (check with your district to see what is available) or long-term care insurance, and establish an emergency fund.
Before you retire, consider meeting with a financial advisor. He or she can help you sort out retirement assets that may be spread among multiple IRAs, 403(b) and 457 plans, as well as your projected income from your CalSTRS or CalPERS pension.
Retirees are sometimes overly cautious – or take excessive risks – with their investments, so an advisor can help you decide on an asset allocation that is appropriate for your timeline, risk tolerance and goals, and formulate appropriate savings withdrawal rates. Periodically review your expenses, investments and asset allocation with your financial advisor to help ensure that your portfolio is keeping pace.
Investigate Income Options
To make your nest egg last longer, you might want to continue growing it. Many retirees go back to work full- or part-time. Returning to work may provide a regular income, subsidized health care benefits and perhaps an opportunity to contribute to a tax-advantaged retirement savings account. Keep in mind, however, that working after retirement may have an impact on your CalSTRS or CalPERS pension.
If you have more home than you need, you may wish to boost your nest egg by downsizing. Along with enjoying the potential opportunity to invest proceeds from the sale, you might pay lower property taxes and cut your maintenance and utility costs.
Those who crave the peace of mind that comes from receiving regular payments may want to consider options such as an income annuity, also known as an immediate fixed annuity. A fixed annuity is a contract offered by an insurance company that guarantees a source of income for a specified period of time (or for life). Payments aren’t affected by market conditions, and some income annuities even offer inflation protection. The guarantee comes from the issuer, so it’s important to choose a company that’s highly rated by the major rating agencies, such as Moody’s or Standard & Poor’s. Because of early-withdrawal penalties and surrender fees, annuities are not for short-term investing, and should complement your other retirement investment savings – not replace them.
For More Information
Because calculating how to tap your nest egg can be complex, you may want to consult a financial advisor for help planning your withdrawals.
How Much Can You Withdraw
|Original size of nest egg ||You can withdraw this much each month for 10 years ||You can withdraw this much each month for 25 years |
|$50,000 ||$530 ||$292 |
|$100,000 ||$1,061 ||$585 |
|$150,000 ||$1,591 ||$877 |
|$200,000 ||$2,121 ||$1,169 |
|$250,000 ||$2,652 ||$1,461 |
|$500,000 ||$5,303 ||$2,923 |
|$750,000 ||$7,955 ||$4,384 |
Source: Bankrate.com. Projections based on 5.0% annual yield compounded monthly; rate of return used for illustration only and does not repre- sent the return of any particular investment. Actual withdrawal rates will vary, depending on investments, inflation rate and tax bracket.