how to retire comfortably

There’s retirement, and then there’s the future that comes with and after retirement. You may be at that stage of life where you ask yourself: “How do I want to spend my retirement years?”

Whether it be traveling, remodeling your home, or investing in your grandchildren’s college educations, the options are endless. Strategies For Retirement
  • The 4% Rule
  • The “Bucket” Strategy
  • Systematic Withdrawal Plan
  • Fixed Percentage Withdrawals
  • Fixed Dollar Withdrawals

The best advice is to be prepared with a strategy according to your anticipated needs.

Here are some tips to help you prepare for your retirement and the future:

  • The 4% Rule: This is when you withdraw 4% of your retirement savings in your first year of retirement, and then an additional 2% each year going forward. For instance, if you have one million saved, you’ll withdraw $40,000 in your first year of retirement, $40,800 the second year (original amount plus the 2%), and so forth. This is a favorable strategy because it’s easy to anticipate budget and lifestyle changes. However, this doesn’t account for overall interest rate changes and economic volatility.
  • The “Bucket” Strategy: In this strategy, you end up withdrawing assets from three “buckets” or in other words, three different types of accounts that hold your assets. About 20% of your savings should exist in this account. In practice it means holding three-to-five years of living expenses as cash-in-hand. The second bucket should contain fixed income securities. Finally, in the third, you have your remaining investment held in equity. When the cash from the first account is spent, the fund is replaced with earnings created by the second – and then the third – accounts. While this strategy allows your savings to grow over time, it does take longer than most people are prepared to wait.
  • Systematic Withdrawal Plan: This is where you only withdraw the income that has been created by investments in your portfolio. This allows your principal balance to remain intact and is a good preventative measure to keep you from running out of money. It’s important to remember that the amount you make or receive in a year will vary since investments are dependent on market performance.
  • Fixed Percentage Withdrawals: This strategy is relatively simple and involves drawing out a set percentage from a portfolio annually. Using this method brings with it a level of uncertainty. If you allocate a percentage below your anticipated rate of return, you could grow your income and account value. If, however, the percentage is set too high, assets couple be depleted much more quickly than anticipated. While simple to follow, the uncertainty inherent in this approach might be too labor-intensive to track for the less vigilant retiree.
  • Fixed Dollar Withdrawals: Similar to fixed percentage withdrawals, fixed dollar withdrawals is a strategy where retirees take out a set dollar amount over a specific period of time. For example, $50,000 each year for five years. Unlike fixed percentage withdrawals, this method provides you with a predictable annual income. The downfall is, it doesn’t do much to protect people against inflation or extreme market volatility, and depending on the dollar amount you choose, you could start to depreciate your principal balance.

Retirement is a milestone that many people eventually reach, and being prepared is the best way to do so. Plan for what your post-career-life budget could look like and start building the safety net for your future.

When it comes to the years before you retire, it’s critical to stash as much as you are able in any one of the various tax-friendly retirement plans. Your company doesn’t offer a 401(k)? Open an IRA or Roth IRA yourself or through a brokerage firm.

And of course, your strategy should include maximizing your Social Security benefits as well as investing in accounts like HSAs or annuities.

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