Retirement is based on a whole series of assumptions made while you are working. Problems with those guesstimates that has been frequently pointed to is the inability of knowing all of the components of the actual arrival at the age when your retirement income is your only income.
But suppose for a minute, you took the worst-case scenario approach to the subject. Suppose you knew how much you would receive from Social Security at full retirement (you receive a statement every year from SSA right around your birthday with this estimate on it). Wouldn’t the most prudent approach be to base everything on this figure?
From there, you could make some varied assumptions on other potential costs. Would your SS check be enough to cover the mortgage you may be carrying with you into retirement? Will it cover the costs of taxes, insurance, upkeep and be enough to out food on the table? Will it be enough to cover inflation? If the answer is yes to these questions, then you may have positioned yourself in the best of all postions.
But if the answer is no, then you can look to what you have invested as making up for the shortfall. Keeping in mind that the earliest years of retirement tend to be the most expensive, you can project your drawdown, perhaps taking as much as 6-8% in the first five to ten-years and planning on a scaling back to half that or less as you age.
The other plan you might be able to consider is doing the opposite of using Social Security as the base. If you draw your Social Security at the first opportunity, invest it conservatively and do so until your full retirement age, you would achieve two things as a result: you would have it and when you pay it back at full retirement age, your payment is increased to the full amount and you will have had the investment income it may have generated and the peace-of-mind of knowing that you have it.
I bumped into a report done by US News and World Report written by Rob Silverblatt. In it, he quoted a series of authors and financial advisors who suggested that investing the unneeded check, if you were among the fortunate few who would not see any need for it, in ETFs. The thinking was based on dollar-cost averaging, the same method you employed for decades in your 401(k). It was accompanied by the standard warnings of trading and how much stock was enough in a retired portfolio to be considered prudent.
But there are other ways and why, I asked, would you invest the sure thing?
The best possible enhancement for your retirement is how you arrive. The liabilities that go with living this mortal coil will accompany you into retirement. The fewer the better and the stronger your financial potential will be. That will, unfortunately, require some work now. But the payoff will be in the options.
Mr. Silverblatt’s article can be found here.
Related posts:
- 401(k) Plans offer Danger and Risk – When You Don’t Expect It
- Your Current Lifestyle: The Managing of Unrealistic Retirement Goals
- Crossroad Capitalism: Your Retirement Plans on Hold
- Retirement Inelegance: The Problem Facing Sponsors, Participants and 401(k) Plans
- Should You Invest in Individual Stocks?