Help Retirement Savings Last Longer with Flexible Spending Strategies
By Saghir Aslam
Rawalpindi, Pakistan
(The following information is provided solely to educate the Muslim community about investing and financial planning. It is hoped that the Ummah will benefit from this effort through greater financial empowerment, enabling the community to live in security and dignity and fulfill their religious and moral obligations towards charitable activities.)
A key question most pre-retirees wrestle with in deciding when to transition into retirement is, “How do I know if my retirement savings will last through my life time?” An important first step in answering this question is to get a good handle on what your expenses will look like in retirement.
You may familiar with one rule-of-thumb that suggests your expenses will be approximately 80% of your pre-retirement expanses. This may be a good starting point, but as u begin to think more seriously about retiring, it’s important to get more precise in planning your budget and expenses. You can ask us to provide you with a budget worksheet, or there are sample work sheets available online. You can also create your own list. The most important thing is to be through in your analysis of your current and projected expenses.
Once your list is complete, bucket your expanses into two main categories – essential (i.e. mortgage, food, medical expenses, etc.) and discretionary (i.e. travel, charitable contribution, entertainment, etc.). This will determine what percentage of your entire expanses you could either eliminate or delay if you were faced with an unexpected large expenditure or your investment portfolio experienced a meaningful decline. This is referred to as your adaptable or flexible spending percentage.
You can help mitigate the risk of depleting your assets too early in your retirement by adapting your spending. Reducing much you are withdrawing from your portfolio in difficult market periods to help preserve the value of your assets that could potentially rebound when the market recovers is generally referred to as adaptable or flexible spending. Implementing adaptable spending strategies involves revisiting your essential and non-essential expenses, adjusting your discretionary spending and delaying major purchases.
On the flip side, adaptable spending allows you to increase your spending when market returns are strong. This strategy helps extend how long your savings might last as well as increase the total income generated over time.
Building flexible spending is likely to help you end up with greater retirement income over time and to reduce the chances of outliving your savings. Whether you want to go it alone work with professional, conducting a detailed inventory of your projected retirement expenses, determining what percentage of spending flexibility is right for you, and adjusting your spending as circumstances change can go a long way to help ensure your retirement savings last throughout your lifetime.
(Saghir A. Aslam only explains strategies and formulas that he has been using. He is merely providing information, and NO ADVICE is given. Mr Aslam does not endorse or recommend any broker, brokerage firm, or any investment at all, nor does he suggest that anyone will earn a profit when or if they purchase stocks, bonds or any other investments. All stocks or investment vehicles mentioned are for illustrative purposes only. Mr Aslam is not an attorney, accountant, real estate broker, stockbroker, investment advisor, or certified financial planner. Mr Aslam does not have anything for sale.)
-----------------------------------------------------------------------------
