Retirement Planning on a Shoestring Budget

A lot of people, about 10,000 Baby Boomers a day, are set to begin the retirement phase of their lives. But many of the people who are retiring are worried about how they will retire and how they will spend their retirement savings. And that is a large part of the problem many retirees are facing, a lack of savings or poor planning on how to spend what it is they have saved. This is where a fee-only fiduciary financial planner can be of assistance.

With the average current workers having less than $10,000 saved for retirement, they will have work to do before reaching their retirements if they desire to be able to live any semblance of normalcy in retirement. But what about the retiree that only has $100,000 saved and is already in their retirement years? A recent study showed that these are typical figures for many retirees and, to be honest, $100,000 is not a lot of funds in which retirement can be funded. So, what are some options for people in this situation?

First, many Baby Boomers still have traditional pensions that can help fund their retirement years so that may be a reason why they have a smaller amount of money saved. After all, if you have a $45,000 annual pension that is the same as having $1,125,000 saved and withdrawing 4% a year as income. That is the main reason why many Baby Boomers did not save in the massive figures that many workers today will face. And when you combine a pension with Social Security that is the equivalent of having even more saved providing a stream of income.

But today’s workers, Generation X, and Millennials are facing a very different reality. While Social Security will be there for these generations, it may not resemble the Social Security of their parents or grandparents. Yes, Social Security will be available to these generations, but some changes will have to be made to ensure that this valuable program continues to provide protection to all of the recipients going forward. However, many Baby Boomers rely solely on Social Security for their main retirement income even today.

So, back to our retiree that relies mainly on Social Security for the bulk of their income and have that $100,000 saved for their retirement. What are the options available to that person to survive for the next several decades? One option is for the retiree to only take about 1-2% out of their savings a year to supplement their Social Security, which is not much money to do much good. But an option is to take the $100,000 and purchase an immediate annuity that would pay about $500 a month for life. That is similar to having $150,000 saved and withdrawing the standard 4% a year for life on a portfolio that makes at least 4% annually as not to touch the principal. While it is not a lot compared to the person with a pension, it is better than nothing and much better than withdrawing only 1-2% a year. For more information on immediate annuities, visit www.immdeiateannuities.com.

If you do not want to go the route of an immediate annuity, few other viable options will provide income for decades off of $100,000. But with the assistance of a financial planner, certain steps can be taken. Much like budgeting the bucket approach can be used in retirement to extend the life of your retirement funds further than they might have otherwise stretched. The buckets can be separated into current living expenses, fun expenses, and long-term living expenses for the future. The first two buckets need to be placed in an account that provides liquidity for the retiree and some income as well. These funds can be placed in money market accounts, US Treasuries, high-quality corporate bonds, and laddered CD’s. While providing some income, these funds are set up to provide immediate or carefully planned withdrawals as the funds are needed. The third bucket will or should be placed in equities to protect you from inflation and to build your capital base in the third bucket. Here you would want to invest in blue-chip companies that pay reliable dividends that are reinvested. This way, you can participate in the growth of the stock market and have an income component in the dividends.

While no two individuals have the same needs or are in the same situation, these plans may not be for everyone. But they do provide a solid foundation for what someone can do with minimal savings in retirement to achieve some semblance of security for decades of retirement. As always, if you need assistance, seek out a fee-only fiduciary financial planner for assistance setting up your retirement to maximize what you have.

If you have any questions or need additional information, feel free to leave a comment here or contact me directly. For occasional email newsletter or insights, please sign up on the form below.

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