When the Dollar Doesn’t Stretch in Retirement

Oftentimes, when working with clients, we are trying to determine how much we can spend from the portfolio to produce retirement income. But there are times after doing the math when we have to have the fiduciary conversation, letting our clients know that it might not be the best option to rely solely on the portfolio value due to the amount of income needed and the size of the account.

What are your options from here? I like to break them down into a few options:
1.) Continue to work longer
2.) Live on less
3.) Save more 

 

Continuing to work is something that is usually easier said than done. When someone is ready to go, they are ready to go, but if we stay an extra year or two, those are two fewer years we have to pull from the portfolio, two more years we can let that money grow, and two more years we can continue to save.

Living on less is an option that is based on the budget. We ask our clients to plan their budget like their quality of life doesn’t need to change. In the event the amount we want to live off exceeds what the portfolio can produce, we have to ask ourselves a question: Would we be comfortable living off less? Oftentimes, this conversation may center around paying off a mortgage or outstanding debt to lower expenses.

Saving more is usually the least viable option due to the lack of time in the market, and it is unlikely that our income will change substantially, but it is an option. One item I usually like to bring up is potentially renting a house or downsizing as a way to boost savings quickly. It could help kill two birds with one stone: boost savings while hopefully lowering expenses, depending on what the next living situation is.


Also see the full article on LinkedIn: Dollar Doesn't Stretch
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