My wife and I were talking about our investment plan and our retirement the other day. We were discussing how much money we should take out of our savings plan and our retirement pension plan. How much should we enjoy while we’re still healthy. I was talking also about the interest income we’re making on our bonds. Also the dividends that we are collecting from our stocks and how volatile the stock market is. Our planning horizon is roughly 20 years to 25 years.
Her comment about all of this was that this was one of the biggest gambles that we are taking in our lives. Many people will mention that buying a house is the biggest purchase. The biggest gamble that many people will take in their lives is their investments for retirement. I feel that actual retirement planning and making sure that your money will last during your retirement years is by far the biggest money decision.
Will you outlive your retirement plan – Alternatives
Retirement Plan – The 4% Rule
The industry suggests that you should take 4% of your total retirement plan out every year and this is the amount that you should budget for your retirement. They say also that you have an 80% chance of your investment plans lasting your lifetime with this approach.
It takes into account stock market fluctuations both up and down as well as periods of time where the income isn’t sufficient to make up the 4% that you were taking out of your plan. We have found that judicious investment in dividend yielding stocks will yield 4% to 5% over the period that you are planning for and judicious investment in blue-chip corporate bonds will yield between 3% and 5% at the present time.
With this level of income you should be able to generate 4% from your retirement plan with no problems whatsoever.
Retirement Plan – What about the Capital
Without touching the capital and the fact that the dividends and interest income are close to 4% you will have an excellent chance that your money will outlast your retirement years.
Monitoring your investments every year and working with an advisor will help you manage your investments to ensure that you have sufficient income and money to last during your retirement. It is one of the most critical things that you can do during retirement years.
Also make sure that your retirement plan is set up so that it can run on automatic pilot, should you not be healthy enough to administer your retirement plan. While you are healthy now, can make decisions etc, there may come a time when your financial adviser will need direction as to how to handle your money. Your living will can also specify how your money should be managed and designate a family member to make those decisions.