How to Make Retirement Last

Think about the concept of retirement for a minute.

You work your entire life, save money for retirement through your own savings plan, an IRA, 401K or some other sort of means, and then ultimately stop working and that steady stream of income is gone.

You’re left to live off what you’ve saved, and have to remain confident (and filled with hope) that the money you’ve put aside for the last few decades is going to last throughout the rest of your life.

When you put it in those terms, you can understand why most retirees or those on the cusp of calling it quits aren’t exactly thrilled with that notion, especially the piece about money no longer being consistently paid out via that paycheck, and instead relying solely on that aforementioned plan you put into place.

But what if said “plan” isn’t as full-proof as you’d like to believe.

What if you tried really hard, and believe you’re going to be just fine, but still have that hint of uncertainly and worry as part of your Golden Years.

The truth is most retirees are worried about retiring, suggesting that there might not be much “golden” about those upcoming years, post-work.

Would you assume that most of the population is worried about retiring? If you said “yes,” you’d be spot on.

Roughly 67 percent of the population is worried about their financial future, with some noting that retirement might seem more like a dream than any sort of reality in their lifetime.^[1]

The sad statistic hovering around retirement is that one in five have saved nothing for retirement, while most assume they’ll outlive the money they have saved, with only a third of the population having $100,000 or more saved.^[2]

When discussing retirement, you have to understand that $100,000 isn’t going to cut it.

If you retire at 65 years of age, and live another 15 to 20 years, and you’re expenses were around $30,000 per year all told, how can you possibly sustain on such a small amount ($100,000)?

Quite simply, you can’t.

Consider in 2002, most Americans opted for 62 as the age they retired. That number has increased significantly in recent years, hitting 66 as the age most retire or even think about retirement.^[3]

Between the inability to save, the emphasis not being put on retirement in general and people having to work well into their 60s, retirement hardly is commonplace for the masses anymore.

But that doesn’t mean you can’t work toward changing the landscape of your financial future, but ultimately more so than that making retirement savings last once you call it quits.

Saving for retirement is key, undoubtedly, but when it’s all said and done, and you’re officially retired, you can continue that path of financial stability you started when you were working and saving diligently and let that continue over into your retirement years, rather than view retiring as more of a reason to full-on spend without consequence or cause.

Retirement isn’t a regression into spending freely without consequence because you believe that dollar figure is going to last forever.

Rather, it’s more about being smart, prudent and changing statistics and perception about retiring being a thing of the past.

Spending speed: Resist urge to overspend in first two years

For retirees, the moment you punch out or call it a day on your final day of work almost feels like the last day of school.

You can recall that last day of classes, when you can’t wait to get out, toss your book bag (or in this case briefcase) off to the side and simply forget about responsibility as a whole. When you’re in school, that forgetfulness lasts for three months, but retiring is more about forgetting about work, well, forever.

But that same wide-eyed student who can’t wait to do a million things when they’re on summer break, all in the first afternoon in some cases, is the same person in general who retires and spends in a frenzy in the first two years after stopping work.

Studies suggest that nearly 50 percent of retirees end up spending the most in the first two years after retirement.^[4]

Now, that same study said the 50 percent plateau in the first two years dropped to around 33 percent in year six, but was the damage already done by that point?

You could argue that most retirees are ready to spend, whether that’s buying a new car to “celebrate” retirement or opting to travel the world in a little more than 80 days but still dropping a significant amount of money on flights, car rentals and hotels post-retirement.

Seniors are getting slapped with travel expenses exceeding their expectations; travel is 40 percent higher than they thought, and almost 60 percent of retirees don’t even budget for travel, but do it anyway.^[5]

So what is the happy medium, the actual withdrawal number you should be going by when you consider how much you have versus what you should be spending each year. The rule of thumb you should go by is around 4 percent with trying your best not to withdraw more than 6 percent, which would be considered ill-advised.^[6]

Debt Consolidation: Large debt is a retirement killer, so learn to manage it properly

Often times, when you’re younger, you assume that as you amass debt you can simply pay it off once you retire, easy, no mess, no fuss and certainly doable. Remember, you have $100,000 saved.

The joke is on the majority of retirees however, particularly if they’re not managing debt well before retiring or during it. You could suggest that, post-retirement, you still need to work off a budget and use the same figures we’ve grown accustomed to even if we’re not retired, such as debt to income ratio for example.

Retiring in debt isn’t something you can’t do, but the statistics suggest that’s become way too comfortable of an approach in the last decade.

Take a look at it with broad numbers: the average person over 60 retired with 1 trillion dollars in debt as of 2003; that number hit nearly 3 trillion (2.84) in 2016, some 13 years later.^[7]

This is more than just telling; it’s alarming.

Retirees are perfectly fine, you would believe, retiring with plenty of debt still surrounding their day to day finances.

The issue, again, with retiring and having too much debt is that you no longer have income, bonuses and other means of adding to your wealth in the simplistic form of getting paid. If anything, your money dwindles.

As of March 2016 numbers, the average credit card debt for a retiree is $6,351, well above the $2,639 you get in social security payout for full retirement age.^[8]

Simply put, debt is something you can deal with when you’re retired but your debt ceiling per month shouldn’t exceed 36 percent. Anything more than that, you’re going to quickly run dry. The real key to retiring and making it last from a debt perspective is your home, the value, ridding yourself of the monthly payment, etc.

Retirees are still paying about 30 percent of their debt toward their homes, and that number is incredibly high when you consider limited funds being a concern.

The best bet is to sell the house, and be without a mortgage, but approximately one-third of those aged 65 to 74 still have about $118,000 of a mortgage left to pay.^[9]

Even still, paying it off makes more sense, and managing debt before and after you retire can’t be overlooked or assumed as being part of retiring in general.

Budget Breakdown: Make sure you budget even after you’re done working

Much like the aforementioned example of travel and overspending with retirees, they toss aside responsibility financially the moment they retire, or so it would seem. They’ve spent 30 plus years budgeting, calculating and saving, so retiring is a reason to throw it all away, toss that spreadsheet and just pay as you go, so to speak.

Not the most opportune and intelligent of ideas.

Retiring isn’t about throwing caution to the wind after you’ve played it so close to the vest for the last three or four decades.

If nothing else, retiring means your budgeting acumen needs to be that much more on point.

Remember, you’re getting social security, have a retirement account and even a pension in some cases, but that’s not nearly what you’ve been used to spending, and it has to last.

You often hear seniors talk about being on a fixed budget, but even if that isn’t the case, the mentality should still abound for the majority of those who are retired.

The Bureau of Labor Statistics says the average retiree spends about $3,700 per month, which equates to $44,600 per year. If you use the aforementioned 4 percent rule of what you can deduct from your retirement that means you’ll need around 1 million dollars saved to retire.{https://www.fool.com/retirement/general/2016/01/25/heres-what-the-average-retired-americans-budget-lo.aspx">[10]

When you consider that from a budgeting perspective and that 4 percent rule being adhered to, you can see why budgeting can’t simply be eliminated about as part of retiring. Seniors often find out in the first five years of retiring that they are more in tune with spending trends and budgeting than they were even as they were planning. The issue with that is that often times it’s too late in the game, and they’re running low on funds and assets, leaving them having to cut back even more so at age 70 or above.

Just because the odds are seemingly stacking and mounting against you from a retirement perspective doesn’t mean those can’t change in coming years or with yourself specifically.

You can get bogged down on the negative, have a clear understanding of how bleak things really are for those who want to retire with enough money and their health on their side.

But the fact remains is retirement can, in fact, be a positive thing if you choose to save wisely and continue that same philosophy during actual retirement.

Recall that retirement is more about modesty than milking every last dollar of your 401K or retirement savings in the few years after you’ve stopped working. Generally, you’ll need about 80 percent of your income per year in order to comfortably retire.^[11]

Plain and simple, if you lived on $80,000 per year while you were gainfully employed, you’ll need about $64,000 of those dollars to live comfortably while retired.

That isn’t to suggest that some haven’t heeded those words and ended up back into the workforce in some form or fashion, but the 80 percent rule suggests very strongly that thinking you’ll live on half of what you made is highly unlikely if not laughable.

The more important elements of retiring successfully for years to come is budgeting, and resisting the urge to spend quickly and ferociously in the first 24 months after you’ve retired.

Managing money, quite simply, doesn’t stop when you quit working.

In fact, some argue that the pattern of prudent spending continues into retirement if not, in actuality, becomes even more expertly challenging.