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My Retirement Plan Ends… A Little More


Find a flexible spending strategy: The general thinking among financial planners is to take 3% of your total investments each year and use it for retirement. This was always deemed to be a great strategy; however it doesn’t always work. For example, if the market tanks, taking out 3% will not only lower your potential upside greatly but will reduce your income. So what do you do?

I will give you a secret that my son, Matt, said to me. I want you to repeat it several times: The amount of your assets aren’t what is important. The amount of your assets aren’t what is important, and the amount of your assets aren’t what is important. So if it isn’t the assets what is important. The answer is that it is the amount of your yearly income that really matters.

I have frequently seen retirees become pathological savers in order to avoid running out of money. This , of course, can have a severe impact on the quality of their retirement as well as affect their happiness. If you can get enough guaranteed cash flow each year for the rest of your life that would cover all of your necessary living expenses, wouldn’t you be much more happy and secure? If course you would . The key is to get enough income to cover these expenses. So how do you do it?

There are several ways: one way is to use the 3% rule each year but cut your expenses when the stock market tanks. This , in theory , sounds good but I don’t think that most people would like this, not to mention, there is no guarantee that you could cut expenses enough to fit within the income flow. 

A second way is to set up a “bond ladder.” Here you would invest at least 40-60% of your assets in bonds that have different maturity dates. Thus, each year some bonds mature ,which require new purchases of bonds. This has a lot of advantages. First you aren’t subject to stock market risk. Secondly, if interest rates rise,which normally reduce bond prices, you always have bonds maturing that provides cash to take advantage of the higher interest paying bonds. However, you have to be very diversified in bonds since companies can and do go bankrupt.

The better way is to get an annuity for your life and that of your spouse. Annuities have come a long way since I reviewed them many years ago, You can get an annuity that doesn’t produce large commissions and rises with inflation each year and gives guarantees in case you or your spouse don’t live long enough to use up all of the money. Having part of your investments in a good annuity can make a huge difference. You do, however, need to shop around. Not all annuities are equally good. 

Using annuities will also “tame market jitters.” Let’s face it, if we are retired and the stock market drops, we get very nervous. If , however, we have a guaranteed flow of cash, we don’t need to worry nor do we need to cut back our spending. This is a win-win for retirees in my opinion. 

Part V can be found here.

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