Financial Security

One Financial Writer Says There Is No Reason To Fear Running Out Of Money In Retirement

I have always been concerned about having enough money when I retire.  Perhaps overly so.  Don’t get me wrong – I have, and do, enjoy myself, but the cost of things is often part of my decision making process.

It just freaks me out when I read about the savings rate of most Americans.  A large percentage have nothing saved for retirement and are only a couple of missed paychecks away from being homeless, at least according to the mainstream press.

I am sure there is a happy medium in between those two extremes.  Yahoo Finance features an article by a financial writer known as the Financial Samurai, who says that the fear of running out of money in retirement is overblown.

Here are ten ways to make your money last during what hopefully is a long, fulfilling, and healthy retirement.

1) You will need less than you think.

My biggest surprise has been how much less I need to live a comfortable retirement life. I spoke with at least two dozen retirees about retirement spending and they all said they are spending much less than they anticipated. For myself, on average I’m spending 30% less than projected.

It costs nothing to play tennis at a public park. There are plenty of cheaper food alternatives once you no longer have to work in an expensive downtown area. You can read all the latest magazines at your local library, surf the web, and enrich your mind with classic literature for free. In fact if you look, you’ll find a plethora of free activities.

2) You don’t need to save for retirement once you are retired.

What many retirees “forget” is that once they reach retirement, they no longer need to save for retirement. It’s not so much forgetting, but being so accustomed to saving that you just can’t stop! If you’ve spent a lifetime maxing out your 401k, you’ve suddenly got $18,000 a year more in gross disposable income.

3) You will adapt to different income levels.

For the first two years after I left my job, my annual income decreased by 70% – 80%. Yet looking back, there were minimal lifestyle changes. I still lived in the same house that I had been living in for seven years prior. Refinancing my mortgage before leaving helped. I also drove the same paid off car named Moose for a couple years until I bought a snazzier car in late 2014.

Yes, I had to cut back on eating prime rib for a couple years. But I replaced $50 dry-aged steaks with $2.5 In N’ Out cheeseburgers. Yum! $12 toro sashimi was replaced with regular old $4 salmon sashimi. Still quite tasty.

As long as I have food, shelter, clothing, dental floss, companionship, and internet access, I’m 85% of the way there. For most of you, it’s going to be the same thing. The joy of doing anything you want, whenever you want more than makes up for a lower income.

4) You will be in a lower income tax bracket.

The great thing about making less money is that you’ll be in a lower income tax bracket. Therefore, you’ll have a relatively higher amount of disposable income for each dollar earned.

It felt wonderful going from a 39.6%, 35%, or 33% marginal income tax bracket (depending on my deductions and bonus) to a more reasonable 25% tax rate for a couple years. Just imagine killing yourself at work for 70 hours a week to give over 50% of some of your income to a fiscally irresponsible government. No thank you.

The double benefit of no longer having to work and paying less taxes made me much happier. Paying less taxes will make you much happier too.

5) You will find many ways to make money.

If you retire with only part of your living expenses covered, logically you’ll need to come up with a solution to cover the “income gap” required by your desired lifestyle.   But once we learn to control our egos, a bevy of new income earning opportunities materialize.

Since retiring, I’ve done consulting with four financial technology companies at an hourly rate 60% – 80% less than what I used to earn at my full-time job. Initially, it felt odd making so much less. But I soon got over it because the experience was fun and I was learning something new.

Then I really squashed my ego and spent time driving for Uber for $25 – $35 net an hour.   The experience was good and driving added about $5,000 more gravy to my plate in 2015. I still pick up passengers when going long distances to make gas money.

You can always sign up to be a greeter at Walmart or flip burgers at McDonald’s while also eating free food. You’re not too proud to work a minimum wage job are you?

If you are willing to swallow your pride and make much less than you once did, you’ll have no problem making up the income gap between your covered expenses and your desired lifestyle.

6) You have more to offer than you think.

When I left finance, I thought I‘d be done for good because I didn’t think I had any transferable skills like a software engineer or electrician. Every colleague I spoke to felt the same way, which is why so few ever leave.

Having transferable skills is overrated. All you really need is to be: 1) likable, 2) trustworthy, and 3) consistent. Anything technical can be learned on the job. The CEOs earning $25 million a year aren’t coding or rewiring your house. All they’re doing is managing people, building business relationships, and making decisions.

Given you’re close to or already retired, what you’ve got more than most is experience. Experience cannot be taught or bought. Acquiring it takes time. Your experience is extremely valuable.

7) Your existing assets have upside.

You might have rental property that hasn’t been spruced up in a while. Perhaps if you did some minor remodeling, you could get a much higher rent.

Your investments might not be properly allocated based on the current state of the economy.  If necessary, we can probably all do some fine-tuning to make our existing assets generate more income. It’s just a matter of taking the time and expending the energy to make it happen.

8) You can always tap your pre-tax retirement accounts early.

If you so happen to retire before the age of 59.5, you can follow Rule 72(t) and withdraw money from your pre-tax retirement accounts penalty free provided that the holder take at least five “substantially equal periodic payments” (SEPPs).

You could simply pay a 10% early withdrawal penalty if you were absolutely desperate.

9) You can create your own destiny.

Why not be your own boss? Startup costs are extremely low nowadays. All you’ve got to do is throw up a site for less than 5 bucks a month and you’re literally in business.

After retiring, I wanted to take Financial Samurai more seriously.  I didn’t know exactly how I was going to build the business, but I knew that if I kept on writing, opportunities would arise. After a full year of sticking to my plan and publishing my freedom book, the traffic on this site grew as did its income.

To maximize profits, I should spend more time optimizing this site. But why bother when this site’s income is already a bonus? I’m having too much fun to go back to a stressful work mindset.

The key is to just start your own site / business endeavor. You don’t need to have all the variables pre-mapped because as you tinker, your variables will change. Overanalyzing a situation will make you do nothing.

10) Plenty of safety nets.

Let’s say you miscalculated how much you need in retirement. For whatever reason, you’re also unable to generate the required extra income to make up the shortfall. Your savings are depleted, your passive income streams dry up, your business ideas all suck, and nobody likes you. Not to worry! You’ve still got family, insurance, and the government to help out.

It is extremely unlikely you will plunge from being able to retire to becoming homeless with all this planning and support.

I always thought I would retire really early, but over time I have found that I enjoy keeping busy, learning new things, and helping others.  So, now, I don’t know if I will ever really retire!

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