NewburyportNews.com, Newburyport, MA

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August 14, 2012

The triathlon approach to retirement planning

Managing retirement income is a triathlon. After successfully completing the budgeting event, you will be tested on choosing your initial withdrawal rate. For the final event, which recurs every year, you have to recalibrate spending and withdrawals based on your life expectancy, the markets, taxes and inflation.

The risk of slacking off on or failing to complete one of these events is running out of money in retirement — the greatest financial fear of retirees. With proper coaching and training, the risk of outliving your savings, however, can be avoided.

Financial peace of mind in retirement comes with planning and perseverance. Setting goals and staying focused on the goals are necessary and essential.

The first event in the retirement-income triathlon is budgeting. What a yawn! If you’re not used to budgeting before retirement, then budgeting going into retirement may require special training.

To make retirement work for you, you want to establish a clear and specific monthly spending target, say $4,000 or $5,632 or some number to cover both your basic expenses plus the fun discretionary stuff. This number should be after income taxes are taken care of.

Some retirees cover their basic essential expenses with Social Security, pensions or annuities. These are streams of income you cannot outlive. It makes sense to make sure you will never run out of money to meet the expenses for shelter, food, insurance, transportation and health care. Incidentally, Fidelity research indicates that a 65-year-old couple today will face $240,000 or more in out-of-pocket health-care expenses in retirement.

What isn’t covered by the fixed-income streams above is covered by your discretionary savings, which may be in the bank or in an investment account. Some of these savings may be in IRAs or other tax-deferred vehicles or they may be in accounts taxable annually due to interest, dividends or capital gains.

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