Retirement Income Shouldn’t Depend on the Market; It Should Depend on Math – Kiplinger’s Personal Finance

Market ups and downs can keep retirees on edge, worried about potentially big losses from which they may never be able to recover.

And those worries aren’t necessarily misguided. From 1928 through March 2022, there have been 26 “bear markets.” A bear market is a market decline greater than 20% that lasts at least two months. The average bear market decline since 1928 has been 35.62%, so the potential for big losses is real.

The good news, though, is that there are ways to protect yourself from these inevitable market downturns. After all, your retirement shouldn’t be an endless series of sleepless nights. And, with careful income planning that covers your lifestyle needs, allows for emergencies and includes a suitable amount for investment and growth, it doesn’t have to be.

For me, this approach to retirement can be summed up with this phrase: Your income shouldn’t depend on the market. It should depend on math.

Just how might that math play out?

Let’s say a couple are closing in on retirement, their savings plan went well and they have $1 million stashed away. That’s a nice tidy sum, but at a time when retirement can last 20 years, 30 years or longer, it’s still important to plan wisely so that the money stretches out the rest of their lives. And as you probably know, people are living longer these days, which means it’s even more important to make the right financial decisions.

Here’s where math gets involved – and we start dividing that money into buckets.

Safety bucket

Unexpected emergencies arise in life – both in and out of retirement – so it’s good to have money in reserve that’s allocated just for that purpose, to help with a smoother ride during retirement. We always ask our clients how much they need in this bucket to feel comfortable, just in case the car needs new tires, the roof leaks or some other crisis, small or large, occurs. As you might imagine, the amounts they give vary, but let’s suppose the couple in our example settle on $50,000 as the figure they want in the safety bucket. That gives us a good beginning to then explore how to manage the rest of their savings.

Income bucket

It is when pondering the contents of this bucket that retirees must decide how much money they will need coming in each month to pay for their lifestyle. Certainly, they need money for groceries and to pay the electric bill, water bill and other necessary expenses. But they also want leisure time as well.

 Let’s say our couple settle on an …….


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