Making Your Money Last as Long as You Live
NY Times, April 21st, 2008
EVEN for people who have built up a decent nest egg, deciding how to
use it is one of the demands of early retirement. The good life may be
within reach, but the financial logistics still require careful
attention.
“We were thinking, We’ve got the time now, but how do we finance
it?” said Cathy Odlaug, recalling how she felt two years ago when her
husband, Bruce, went part time at his Minneapolis law firm, giving up
his partnership and 60 percent of his income.
In an era when fewer Americans are getting pensions, Mrs. Odlaug’s
concern isn’t unusual. Most retirees have to create their own income
streams, usually through a combination of Social Security and
distributions from retirement savings, including I.R.A.’s and 401(k)
accounts.
“Unless you’ve actually lived through it personally, you don’t fully
appreciate some of the nuances of the deaccumulation phase,” said
Sheryl Garrett, founder of the Garrett Planning Network, which creates
financial plans for middle-income people. “There’s a lot of angst
around, How am I going to get my paycheck in retirement?”
Some differences in planning are personal. For instance, a couple
planning to retire at 55 may need a paycheck-bridge strategy before
they become eligible for Social Security at age 62, said Michael
Kitces, director of financial planning for the Pinnacle Advisory Group
in Columbia, Md. If the couple are in line for an inheritance or are
planning to sell a second home, they can spend more earlier in
retirement than might otherwise seem prudent, he added.
Other variations are economic. An extended period of stock-market
gains may let some retirees increase their withdrawals. A couple of
down years can have the opposite effect.
These factors must all be weighed in a paycheck replacement plan.
“The mathematics of this are beyond what most people could really be
sophisticated at,” said Roger Ibbotson, a professor at the Yale School
of Management and an expert on investments who has helped mutual fund
companies advise retirees. “It’s not that they’re stupid. It’s just
that it’s complicated.”
To give retirees some new tools, two of the biggest fund companies,
Fidelity and Vanguard, have introduced mutual funds intended to make it
easy for retirees to make systematic monthly withdrawals.
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