As a rule-of-thumb, retirees, for some time now, have been advised to count on spending 70 to 85 percent of their paychecks received “just before retirement.”
Yet, according to a government study, those calculations should be “general targets.” Other factors, like “individual circumstances and goals,” seem obvious, but are not always followed.
“Many people work part time in their later years, or their income tapers off during their last years of work…(therefore) Pegging a target retirement income to the amount you earned in your last year of employment may not be appropriate for many people.”
Morningstar notes that it’s not uncommon for retirees to fail in their spending estimates by as much as 20 percent. Consequently, retirees should examine a range of personal spending habits that could affect withdrawal rates. In addition, one’s life expectancy as well as inflation should be factored in.
Should the ‘principal’ be touched?
According to Tony Webb, research economist at the Center for Retirement Research/Boston College, “it really is okay to spend capital. That’s what is there for.” Likewise, and as CNBC points out never touch one’s principal falls into that category of retirement myths.
Importance of a guaranteed, fixed income stream…
Outliving one’s portfolio is a common fear among retirees. Yet many do not factor in the potential for a market downturn and adjust their portfolios to counteract such occurrences.That’s why investing a portion of the retirement portfolio into a fixed income annuity is gaining traction among investors.
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