Investing in your 60s is a different ballgame than when you focused mostly on growing your retirement funds. When you crack into your retirement nest egg, you need to change your investment strategy. The idea is to withdraw enough to help you get by now while holding enough in reserve to finance the rest of your life.
Making the transition to investing in your 60s and beyond requires a new way of thinking about investments. Here are 11 pointers:
1. Estimate how long your savings must last
You can’t plan effectively without an idea of how long your money should last. Of course you can’t know how long you’ll live, so we’re talking here about estimating the longest you might live, so you won’t run out of money.
A 65-year-old woman can expect to live to nearly 87, and a man the same age will live, on average, until 84, says the Social Security Administration, whose Life Expectancy Calculator gives a rough idea of expected lifespans. Or use The Wharton School of Business’ Life Expectancy Calculator for more-specific estimate based on your answers to questions about behavior, family history and health.
2. Calculate annual expenses
To plan your finances in retirement, you’ll need to know how much you need to live. Especially if money is tight, you’ll need specific spending data, not estimates. If you budget and have tracked your spending, you’ve got the data you need. If not, start now. Automatic tracking is simple with free tools like one from Money Talks News’ partner PowerWallet. But a notebook or spreadsheet, to name a couple of alternatives, also will do — as long as you keep it up. After tracking for a few months, you’ll begin to see where your money’s going and can decide how much to withdraw from investments.
3. Fully fund emergency savings
Keeping a cushion of savings in cash or short-term CDs lets you ride out market downturns without selling stocks at low valuations. Some experts advise having an emergency fund to support yourself for a year and a half to two years.
4. Plan your withdrawals
Retirees need a system for regular cash withdrawals. For example, one popular system suggests withdrawing 4 percent of your initial savings balance each year, then adjusting that amount annually for inflation. The creator of this approach, William Bengen, says savings split equally between stocks and bonds should last at least 30 years with this system. While, as he recently told The New York Times, the 4 percent rule “is not a law of nature,” it does provide a framework. The key is to adopt a system, then adjust it as necessary.