8/14/2014 9:15 PM ET|
How to deal with a retirement catastrophe
These backup plans will help you weather almost any retirement obstacle.
Aspiring retirees have many decades of retirement life they need to plan for. There are also a wide variety of things that could go wrong with your financial plan, ranging from poor investment returns to high inflation. How your investments will perform and how much the prices of basic goods and services will increase is difficult to predict, and could have a devastating impact on your retirement finances if you guess wrong.
Here are several things you can do to help your portfolio deal with a catastrophe.
You still have human capital
Retirement doesn't have to be forever. If you begin to find it uncomfortable living on your fixed income, you can always find ways to earn some extra spending money. There are a variety of ways to increase your income if the markets don't cooperate and you suddenly find yourself wanting to increase the chances you won't run out of money or to get a little extra breathing room in your budget. Calling yourself retired while still earning income is an increasingly popular route to take.
Tap wealth outside of your portfolio
Being completely debt-free, including owning a paid-off home, is a worthy goal for retirement. That means you'll always be able to downsize your house if you ever need more money to spend in retirement. A move can boost your finances in two ways: You get to invest the additional home equity and will have fewer ongoing expenses with a smaller place. Just watch out for the transaction costs of selling your home, finding a new place and moving.
Social Security will be there for you
I absolutely expect to receive income from Social Security in retirement. Congress will not let the program die due to its popularity and importance to taxpayers. This income will be a good cushion when I elect to receive the paychecks. And the payments are adjusted to keep up with inflation each year, so at least this portion of your income will keep up with rising costs.
- Also on U.S. News & World Report: 10 numbers everyone should know about Social Security
Have a plan to cut back
I could retire right now, but I would rather live a more comfortable lifestyle in retirement, which is why I choose to continue padding my bank account. After I pull the trigger to retire, I can always dial back my spending to reflect the realities of my investment returns. My budget includes a healthy dose of unnecessary spending that I could cut back on if I needed to. The good news is that happiness and spending aren’t directly proportional. If I really have to ratchet down my spending at some point in the future, I can still be happy.
Use innovations to cut costs
Most of us are spending more on discretionary expenses because we are buying things that simply didn't exist years ago. Nice clothes can be had for not much more than a decade ago, but we are spending more because we now have a $100 monthly smartphone bill. But there are also ways technology can save you money without giving anything up.
For example, I used to negotiate for a lower cable TV bill, but now I stream entertainment through the Internet for a fraction of the cost. And shopping around for the best deal is easier than ever on the Internet. I am sure that the future will include more ways for me to save without sacrifice, as long as I take the time to look.
Trying to predict what will happen decades in the future is impossible. But you don’t need to delay your retirement date indefinitely out of fear. Make a reasonable plan and add a dose of margin for safety. You will find a way to cope with stock market declines and inflation if you stay flexible in retirement.
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"Many decades of retirement life"...any one tell these experts that the average age of first time retirees is increasing...and not by choice. Does any one really think that over 50% of people retiring at 65 will still be enjoying an active life at 85? Do not think so, over a third will be gone, another third lucky to be able to feed themselves at best. Many does not constitute a couple...at best.
The other thing is...is that quite a few of those that retire early, are forced to. Lose your job in your late 50's to early 60's and the chance of replacing it with a similar position is very remote. Have seen this time and time again, becoming the norm for a vast amount of people. Would not be surprised if it will be the majority of new retirees in the near future.
Then is says...find a job to supplement...human capital. Tell that to my wife's friend who just lost her "supplemental" semi retirement job driving school bus at 64 because even though she passed the physical, her weight + age indicates she is a candidate for sleep apnea. The cost to prove them wrong is more than she would make in 3 months. Oh yeah, her husband lost his job when he was 57 due to a heart attack (two days after passing a stress test with flying colors). They took a home equity loan to cover the medical and rehab costs, then the company he worked for canned him...they scrapped by for the last six seven years, but will in the street pretty soon.
Social Security will be with you. Only if the politicians don't start "means testing" it like most of the other government programs.
You can continue to work. Only if there is employment opportunities available, and the industries are not regulated and taxed into only hiring part time employees for increased minimum wage.
Use innovation to cut costs. Vote out any politician that wants to treat people differently under the law and still use income to seperate people, if not you will continue to pay for other people's lifestyle.
Have a plan to cut back. Yes vote out those that wish to increase taxes, increases in size of government and government programs that support the dependency class welfare state.
Clinton revised SS when he was President, but what no one expected was that the wealth gap would explode. I know that I used to have my SS paid up by Sept ( mid - nineties) now I don't even get close.
That is why SS seems underfunded, wages have just not kept pace with the market.
My definition of government at all levels.
Definition of Government, an establishment of rulers over the people's affairs that starts out well, it gets more corrupt and deceptive over time....Within a short time in existence it loses it's moral compass and objectives of caring for others and thinks only of growing itself. If it stays together for a long period of time it implodes and destroys itself from within. .
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