Introduction
In this quarter, we have been looking at the topic of retirement and the various financial decisions you have to make in preparation for retirement.
Retirement is a crucial period of life, and you cannot prepare too much for it.
In this final article, we move away from planning for retirement to living in retirement.
Enjoying Retirement
When we talk about retirement planning, we tend to equate it with financial planning for retirement. However, while financial planning should be an essential part of retirement, it should not be the only thing.
More important than financial planning is planning how to enjoy your retirement. The pursuit of happiness during retirement is primary. Retirement provides you with more time, and you need to plan how to spend that time doing things that make you happy (within legal and moral boundaries, of course).
For some, enjoying retirement means the ability to travel all over the world. For others, it is the opportunity to write a bestselling story or non-fiction. Some may devote retirement to working for a charity or a mission board.
While you may not work for money during retirement, you will not be idle. Therefore, retirement planning must incorporate a solid plan for leisure and activities.
When you retire, you want to make sure you are enjoying retirement by spending time on those essential activities.
Spending and Budgeting
The whole purpose of financial planning is to ensure you have the money in retirement to live the life you desire in retirement.
By planning your leisure and activities during retirement, you can create a budget for your retirement years and decide on the amount you should be saving (and investing) to meet your retirement goals.
During retirement, you will still need to be creating a budget to keep track of your spending. There will never be a period of life when financial discipline is no longer a necessity.
If you do your retirement planning right, you can enjoy life in retirement while practicing financial discipline.
The goal is not to avoid spending ‘too much’ but to ensure you are spending within your budget (which should reflect the budget you used to determine how much you should be saving for retirement).
You can take vacations every two weeks if you like as long as you already figured that into your retirement plan and retirement savings.
Making Withdrawals
The budget you create will determine how often and how much you withdraw from your retirement accounts. Once you have your budget, you will know how much you need for the month.
The next step is to sum up the money coming from social security, pension, annuity, and part-time income.
The money you will be withdrawing from your retirement account(s) is the difference between your budgeted expenses and the retirement income sources above.
Financial planners also advise that you keep the money in your retirement accounts in different investment buckets. The first bucket will be in liquid, non-volatile, and stable investments like bonds, savings account, and other fixed-income securities.
In this first bucket, you will hold the money you need to augment the retirement income sources above to meet your budgeted expenses. Since you need this money to meet your budgeted expenses, it should be in investment sources that are liquid and readily available.
The second bucket is where you want to hold money for long-term growth. In this bucket, you can invest in stocks and mutual funds. The money here will grow at a high rate of return compared to the first bucket. When the money in the first bucket is getting low, you can make some withdrawals from the second bucket to the first bucket to bolster liquidity.
The third bucket should be where you keep funds you intend leaving for your children, dependent relatives, and favourite charities. You will want to invest these funds in growth stocks and real estate.
The goal here is to avoid excess liquidity when you could be earning higher returns and prevent illiquidity, which may lead you to sell a stock in an upward trajectory or borrow money at a high interest rate to avoid the sale.
Conclusion
Life in retirement does not have to be boring. All you need is to make concrete plans for the life you want and take the financial decisions that will get you there.
Once in retirement, ensure you stay faithful to those plans, create budgets around them, and develop the financial discipline to withdraw money from your retirement accounts in the most financially rewarding manner.
If you have not followed this series on retirement, here is an excellent place to start.
Stay tuned to this blog as we begin another series for next quarter. To know when we get started, subscribe to the mailing list.
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