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Save for Retirement Week



Saving & Budgeting Near Retirement: Who has the best plan?

Grace Greenley

Colin Pace

Grace is 61 years old and plans to retire in 5 years. Has a history of sticking to a budget and used the “pay yourself” rule to ensure an ample emergency fund and retirement savings. Now Grace is focusing on creating a budget for when she retires and no longer has a paycheck. Grace doesn’t take the “standard” route (4% withdrawal rate or 70-80% replacement of income rule). Instead, she focuses on projecting her “in-retirement” budget, taking into account her specific needs and expenses. Also 61 years old and planning to retire in 5 years, Colin didn’t get serious about saving for retirement until he was 50, but he’s done a nice job of catching up on retirement savings. Has spent considerable time researching and listening to the “retirement experts” and is focusing on retirement savings and plans on replacing 70-80% of his working income in retirement. Colin firmly believes replacing 70-80% of his annual income for retirement and withdrawing only 4% annually will be perfect for him. He doesn’t see himself traveling in retirement, but he does plan to down-size.
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Grace Greenley

Spot on! If you’re within five years of your target retirement date, this is the perfect time to start developing a budget for when you are no longer bringing in a paycheck. Creating a retirement budget requires some forward thinking. After estimating your lifespan, create an initial budget, then be prepared to adjust it as your retirement lifestyle develops over time. You might even find some current expenses will not be there when you retire.

However, during the first year or two of retirement people typically spend more on travel and leisure activities. Later, they’re likely to spend more on health. Everyone’s situation is different, so this is the time to reflect on how you expect to spend money as you move into retirement. Will your income in retirement be able to support your lifestyle?

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Colin Pace

This isn’t the best choice, but it’s not entirely the wrong way to go, either. The “70-80% Rule” is just a benchmark. Everyone has their own vision and needs. Replacing 70-80% of your current income may not be enough for your individual situation. Some financial experts suggest that you should plan on replacing 100% of your income in retirement, as life expectancies continue to rise. Instead of using a standard rule, you should begin to strategize and budget for your retirement years, approximately five years away from your target retirement date. At this point, creating a retirement budget is a more savvy strategy. The budget is based on your individual situation and takes into account the specifics that make up your life in retirement, rather than based on a generic benchmark.

Finally, when calculating your withdrawals during retirement, think about how much you could need to withdraw annually. The “4% withdrawal rule” is a good starting point but will differ for your individual situation.


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