How flexible is your retirement income strategy? When I think about retirement income I always remember Jerry’s Nana on Seinfeld who lived on a “very fixed income.” She sent Jerry a check for $10 every year on his birthday which he never cashed because he knew she couldn’t afford it being that she was on a “very fixed income.” The situation was so dire it forced Jerry’s Uncle Leo to yell “Stop the Show” during a charity telethon Jerry was hosting in this video.
What are the odds that you may have to “Stop the Show” on spending in retirement?
Traditionally retirement income has been compared to a three legged stool, supported by the following sources:
- Social Security
- Personal Savings
For more modern retirees, the pension portion of retirement income is significantly less than prior generations if it exists at all. Some might also argue that Social Security Income is in jeopardy as well. This only increases the importance of personal savings. When designing an income strategy most retirees want their savings to last as long as possible without sacrificing their standard of living. This may or may not be possible.
When creating financial plans we can model almost any scenario and run a Monte Carlo Analysis to produce a “Success Rate” for the plan. While success is defined as not running out of investment assets (personal savings) during your lifetime, the failure rate is really the probability that you have to change something at some point. Depending on your situation there could be multiple opportunities to increase long term success and stretch personal savings further. These can include:
- Increase Income
- Decrease Spending
- Work longer
- Earn part time income in retirement
- Implement a disciplined investment strategy
- Downsize your home
- Access Home Equity through a HELOC or Reverse Mortgage
- Sell land or real estate
If you are not able to successfully implement these changes or your personal savings were inadequate to begin with, you may face living on a “very fixed income.” This may mean that your only dollars to spend are those coming in monthly from Social Security and potentially Pension Income. Knowing this as early as possible can also help you plan to maximize those income streams, while exploring other options to maintain your standard of living in your golden years.