FREE NEWSLETTER
MY RETIREMENT finances today are based on actions I took over six-plus decades, starting at age 18. Early on, I tried my hand at picking stocks and beating the market—to my regret. As time went on, I became more sensible.
Want to avoid my mistakes? Here are 10 tips based on my lifetime of managing money:
I’ll add one more that’s a bit controversial and perhaps not for everyone: Take a small portion of your savings and buy a few high-quality dividend-paying stocks when you’re young, reinvest the dividends and let it ride. Down the road, that’ll give you a stream of income from the dividends.
At my urging, two of my grandsons, ages 15 and 19, just bought a few shares of my old employer, Public Service Enterprise Group (symbol: PEG), along with a few mutual funds. Public Service Enterprise Group has paid dividends for the past 117 years and today comprises about 17% of my portfolio. I wouldn’t suggest that relatively high percentage for anyone who depends on their portfolio for their living expenses. I have a misplaced loyalty—but I also have the safety net provided by a pension.
The dollar amount you have to save and invest isn’t important. It will always be relative to your income, but so will your living expenses in retirement. The important thing is to get started.
But saving for retirement is arguably the easy part. Up next: using the money in retirement. I see one basic question: Do you set your spending budget first and let that determine your annual withdrawals, or do you settle on a prudent amount to withdraw each year and then let that determine what’s available to spend? When working, your income determines your ability to spend. Should retirement be any different?
A person living on a $60,000-a-year pension has no choice but to live within that amount. Similarly, a person using a percent withdrawal strategy should do the same.
Let’s say you have a $1.5 million nest egg. Your spending—including the sum needed for taxes—shouldn’t exceed $60,000 a year, assuming a 4% withdrawal rate. It doesn’t matter what you want to spend or what your budget says. Instead, your spending should be limited by what your accumulated investments can sustain.
Richard Quinn blogs at QuinnsCommentary.net. Before retiring in 2010, Dick was a compensation and benefits executive. Follow him on X (Twitter) @QuinnsComments and check out his earlier articles.
Want to receive our weekly newsletter? Sign up now. How about our daily alert about the site's latest posts? Join the list.
I set my spending budget first and let that determine my annual withdrawals. My spreadsheet projects my retirement account balances for the next 30+ years, using projected spending, pension income, SS and retirement account earnings. If the combined retirement balance never falls below a threshold I am comfortable with, I go along my merry spending way.
What did you do before retirement? Income did not determine spending?
It did but why does it have to continue that way? I see a shift toward spending freedom as one of the joys of having saved for 40+ years. And, to me, it seems like a logical shift as you age. When you’re young, the uncertainties are limitless so you need to be more prudent and conservative. When you’re older, you have a pretty good idea how the rest of your life is going to play out. Might as well figure out what you still want to get done and go for it.