As one approaches retirement, what could be done to supersize one’s nest egg and ensure it lasts throughout the retirement years. Thankfully there are levers that you can pull to draw out your retirement income.
Have a look at some of the strategies that might work for you.
Adjust your withdrawals during retirement
Investment experts usually assume a standard 4% withdrawal rate to work out how many years your retirement kitty would last. By that logic, your retirement portfolio is expected to last for 25-30 years.
However, these rates are only a rough guide. By being flexible and open, you can improve the chances of your portfolio outlasting your lifetime.
A JP Morgan’s study titled ‘Breaking the 4% rule” found that calibrating withdrawal rates and bond exposure based on investor’s age, wealth, lifetime income and risk profile reduced the risk of either exhausting portfolio assets too soon or amassing substantial amounts of wealth that will go unused.
It suggested actively responding to withdrawal rates based on the market environment and individual retirement situation.
Adopt Growth in your retirement portfolio
Divvy up your portfolio into five-year buckets. The idea is to set aside money to cover retirement expenses for a set period of time in separate buckets. Each bucket will hold increasingly more aggressive investments.
For instance, let’s say you are planning for a 30-yr retirement. You could divide your corpus into six buckets (of five years each). The first bucket will hold the least risky debt instruments. This is to provide for retirement expenses in the initial five years.
Each successive bucket will hold a relatively more aggressive portfolio as it will not be tapped and can therefore safely ride the ups and downs of the stock market.
Once a bucket is used up, you refill it with the next one. This will reduce the overall risk level of your portfolio downward as you move through the buckets. By doing this, you will not only ensure cash to meet current expenses but also give long-term money a chance to earn high returns.
By following the five-year bucket strategy your equity portfolio will remain intact and its exposure reduced gradually to avoid major losses due to the onslaught of a bearish phase (if and when it comes) in the market. Also by investing up to 50% in equities post-retirement, you can improve the longevity of the retirement portfolio by 5-10 years.
Stay Healthy post retirement
Health is wealth, goes the old saying. Healthcare costs are one of the primary concerns of people planning for retirement, which can lead to retirees running out of money.
Staying healthy can reduce healthcare out-of-pocket expenses. Exercise, meditate and lead a healthy lifestyle to keep yourself physically fit and healthy.
By resorting to regular health check-ups and screenings, you also avoid health problems and catch potential ones before they become serious.
Downsize to a smaller house on retirement
If you are living in a large house, you can consider selling it and moving to a smaller house. It can boost your retirement kitty and also save on recurring expenses like that on maintenance and related costs.
For instance, moving from 2,200 square feet to 800 square feet not only means lesser maintenance costs, but also smaller utility bills and lesser property tax.
Alternatively, selling the house and moving to a rental apartment is also an option. It will give you additional capital to stretch your retirement income but adds to fixed expenses (rent).
However, since rental yields in India are very low (2-3% pa. in metros), you can benefit from prudent portfolio management and tax planning.
Curtail your post-retirement expenses
Prepare a budget and figure out the category of household expenses that can be reduced by 10% or more. Look towards knocking off lifestyle expenses or by moving to places that are relatively cheaper. It can result in good savings over a period of time.
You can also stretch your retirement income years by elongating your working years. Instead of doing an encore, you can also consider pursuing a long-held passion or a part-time job to cover expenses without dipping into your retirement nest.
There are many ways to stretch your retirement income. Pick the ones based on your need and requirement. Want to retire with confidence? Then Scripbox Retire Confident can help you do just that.