For many investors in their 70s, this decade in retirement offers time for desires like travel, quality time with growing family and friends, and the pursuit of hobbies that were hard to fit in before.
But all of this costs money, and retirees wonder how much can they can spend in retirement without outliving their money?
“Setting a sustainable withdrawal rate–or spending rate, as I prefer–is such an important part of retirement planning, pre-retirees and retirees who need guidance should seek the help of a financial adviser for this part of the planning process,” says Morningstar’s Director of Personal Finance Christine Benz.
She adds that at a bare minimum, anyone embarking on retirement should understand the basics of spending rates: how to calculate them, how to make sure their spending passes the sniff test of sustainability given their time horizon and asset allocation, and why it can be valuable to adjust spending rates over time.
Retirees may also have other questions, including:
- Should I adjust my spending in this environment?
- Is my capital going to last?
- Can I do anything smartly to generate more income from my portfolio?
- How do I avoid the big mistakes that will cause me to run out of money?
To help with some of this, the team at Morningstar Investment Management has some tips.
7 Actions for Investors in their 70s to Consider
- Enjoy Your Wealth: We can become overly defensive when we cease working. However, a personalized approach, including a clear succession plan, may help you enjoy your wealth – you’ve worked hard to get to this point!
- Think About Your Withdrawal Strategy: Investors in “withdrawal mode” can become defensive and short-term orientated. A portfolio bucketing approach can help clients remain focused on the long term.
- Focus on Outcomes, Especially Cashflow: As investors enter retirement, outcomes become far more important than relative gains. Tie outcomes to their goals, with a specific focus on funding your retirement cash flow needs.
- Supporting Others: You may need to balance your own financial security with the distribution of your wealth to others. An income-oriented portfolio can help by distributing to others while retaining the capital for future use.
- Behavioural Coaching on Sequencing Risk: Research shows that behavioural coaching can add meaningful value. Or conversely, bad behaviour is destructive. Understand sequencing risk, while keeping in mind the principles of good investing and associated habits.
- Consider Different Portfolio Combinations: Meeting goals is an individual experience and tracking the TSX Composite, or S&P500 is not for everyone. Embrace portfolio combinations you feel positive about, but don’t overcomplicate your investments.
- Prepare for a Post-Retirement Crash: Over your retirement, you’re likely to experience at least one market crash. Your response to these events will determine your ability to preserve capital. The better you are prepared, the less likely you are to make mistakes.
