Retirement is freedom from the working environment. It also translates to living off a fixed income for an uncertain amount of time, so it is important to plan vigorously on how to make your resources last for as long as possible. Everyone’s situation varies, but so are the strategies you can use to tackle them. Below are the strategies you can use in these instances:
Bucket Strategy
The bucket approach divides your retirement savings into three buckets based on when you’ll need to access the funds.
- The first bucket is for your emergency fund and money you plan to spend within the next couple of years on living expenses or major purchases.
- The second bucket is for money you plan to use within the next three to 10 years. You can put these funds into safer investments, like bonds or certificates of deposit.
- The third bucket is for money you don’t plan to use for a decade or more. Invest this money in stocks and other assets with greater growth potential.
Systematic Withdrawals
Using this approach entails removing a percentage of your nest egg in the first year of you being retired to then increase the amount slightly every year post-inflation. A common rule of thumb is the 4% rule, which is that you should limit your annual withdrawals to 4% of your nest egg.
Annuities
An annuity is a contract you make with an insurance company whereby you pay a certain amount of money, and, in exchange, the insurance company sends you guaranteed monthly checks for the rest of your life.
Downsizing
Downsizing decreases your living expenses to increase your existing savings. Either by moving into a smaller home, a more affordable area, or both. You can also offset some of the cost of your living expenses by renting out extra space.
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Conclusion
These strategies might not be appealing yet using a few can help the longevity of your retirement savings. Considering which one’s make sense for you helps the transition into retirement become a little smoother.
