How the first 5 years of your retirement can ruin the rest of them
The article talks about the classic “sequence of returns” risk. Otherwise stated as, it’s not how much the market goes up and down, it’s when it goes up and down.
Negative returns on your investments in the first five years after you retire can significantly impact the financial outlook for the rest of your retirement, unless you find a way to mitigate that risk.
While one suggestion made in the article is to reduce your exposure to equities way before retirement, my answer is different.
Instead, I recommend that you come up with a plan that secures enough income at every stage of retirement so that market volatility doesn’t ruin your retirement. For example, aim for being 70% secure at age 65, 85% at 75 and 100% in how much income you’ll have coming in at 85.
This is the beauty of income annuitites. Properly set up, they allow you to do just that. And they remove the risk you’re otherwise exposed to when it comes to market downturns.
Retirees just want to have fun
Neither my wife nor I are retired, but we took a Baltic Cruise two years ago. While we didn’t do a formal survey, a high percentage of those on the ship were retired – or at least not checking their cell phones every 15 minutes. I expect that a lot of the cruisers did some serious planning to get to this point.
This article describes the amount of money retirees spend on leisure activities, particularly travel, and it’s a huge amount. Retired Baby Boomers spend more on travel per year than any other age group.
My advice, when you’re planning your retirement budget, build these kinds of expenses into it, accounting for the kind of travelling you want to be doing early and late in retirement.