You guys are all giving me such great ideas in the comments for future posts, but first I will finish my committment to bring you the full text of the interview I did with Michael Foster for Bankrate.com. Here is part two of that interview:
What investments do you rely on the most for your retirement income? (E.g. dividend yielding stocks, company pension, annuity)
So I don't really view my retirement strategy to be based on "retirement income." Rather I plan on drawing on our assets to support us--they generate dividends, capital gains, interest, etc., but we don't use that income to live on. The nest egg goes up and down (mostly from market gyrations), and we take out what we need (that set amount that equaled 3% the first year, adjusted for inflation).
Generally speaking, in the early years, the nest egg would typically be growing faster than the rate of withdrawal, and in the later years, the effects of inflation will reverse that trend, such that in the later years we will be spending down our assets. If all goes well, we'll die before we run out of assets.
I track our progress quarterly, though, so if all seems to not be going well, we will make adjustments down the line (spend less, downsize, reverse mortgage, part-time work, etc. etc.) You have to be flexible when you are living this way, I think.
If your post-retirement income is smaller than your pre-retirement income, how have you adjusted your lifestyle to accommodate this difference?
As I mentioned, we don't really live on the "income" our portfolio generates, rather a set amount of money, which will increase as inflation increases. But since that nest egg is crucial to our plan, and since it dropped significantly our first year of retirement, we are very careful with our spending. We didn't spend much on travel that first year (or other discretionary expenses) while we got a sense of how our financial situation would play out. 30% of our budget is set for discretionary things like travel, eating out, entertainment, recreation, etc. So if an unexpected health insurance premium increase hits without an unexpected decrease in our property tax (both those things occurred in the second year), we just adjust the lifestyle choices within that 30% to make it all work.
If you could go back in time and change anything about your pre-retirement financial strategy, what would it be?
I would have been less aggressive in my stock allocation, probably aiming for a 60% stock/40% cash/bond allocation rather than the 70/30 allocation I retired with. Nothing like a bear market to teach you that lesson!
Just as a side note, I know I say "I" a lot in my answers, but my husband is also retired. He retired about 4 years before I did (we went from being a dual income couple to a single income one at that point--which was a good adjustment to practice before I eventually joined in retirement 4 years later.)
What advice would you give to a would-be retiree?
Retirement is a big adjustment. The first couple years will be surprising as you figure out what you want to be doing with your newfound time. Don't rush it. Try to just see where it takes you rather than forcing a pre-determined idea of what retirement "should be."
As far as financially, I highly recommend having 3 years worth of living expenses available in liquid assets so you don't have to be overly concerned about stock market gyrations. (At least for those of us that will be living on our 401(k)'s rather than a pension.)
I'll publish the rest in my next post.
More on Early Retirement (Part 1)
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