Retirement: How not to go broke before you die-Aubrey Cohen, NerdWallet

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You've spent a lifetime saving for and dreaming about a retirement perhaps filled with travel, volunteering or spending more time with family.
But as you consider your next chapter, you also have to make sure your nest egg lasts for the rest of your life.
By considering some basic investment rules and creating a detailed plan to handle everyday expenses and emergencies, you can make your retirement more comfortable and secure.
Rules of thumb
Some rules of thumb can help guide retirement thinking, providing a relatively simple answer to a complicated calculation. One well-known guideline holds that you should be able to withdraw 4% of your portfolio every year and still have money to spare when you die.
A recent research note from T. Rowe Price validated that conventional wisdom -- in part. The investment firm showed that an investment portfolio with almost any mix of stocks and bonds would survive a 20-year retirement with an initial withdrawal of 4% per year, increasing the amount by 3% a year for inflation, and probably would last 20 years even with a 5% initial withdrawal.
But people are living longer these days, and that raises the risk of running out of savings. A portfolio consisting of 60% stocks and 40% bonds stands an 80% chance of lasting 30 years with an initial withdrawal of 4% and just a 46% likelihood of lasting that long starting at 5%, T. Rowe Price reported. (The simulation estimated 8% annual return for stocks and 4.4% to 5.3% for bonds).
Another approach is to figure out how much you need to spend and see if you can afford that amount. Guy Baker, a financial advisor based in Irvine, California, says retirees should expect to spend 80% to 90% of what they brought home when they worked. Social Security and pension income (if you have it) would cover part of this. The remainder, multiplied by how long you expect to be retired, is up to you.
Patricia Jennerjohn, a financial planner based in Oakland, California, cautions that spending often doesn't decline, at least at the start of retirement.
"You shouldn't expect to spend less. You should expect to spend differently," she advises. "Certain things, like wardrobe and commuting expenses, will probably be replaced by things you want to have fun on."
A close look at spending
Jennerjohn has clients start by figuring out fixed expenses, such housing, utilities and insurance. These are fixed in that you don't have a choice whether to pay them, but they will change, going up with inflation or down with the payoff of a mortgage.
Clients then look at discretionary spending, including things you'd like to have and do, like cable TV and travel, and other items, like food, where you have wide latitude about how much you spend.
"That gives you an idea of the part of spending that you can control to some extent," Jennerjohn says.
A huge part of figuring out how much you are going to spend in retirement, of course, is having an idea of how long you will live. These days, we're living longer than ever.
Jennerjohn usually starts with a lifespan of 90 and cautions against going much below that.
"I don't like people to plan for an early demise," she says.
The Social Security Administration has a basic life-expectancy calculator. Others, such as this one from Northwestern Mutual, get into more detail about your health and lifestyle.
Income
The exercise above can lead to a truly frightening number. Now what?
First, the amount of money you need in retirement is why experts keep talking about the need to start saving early. Starting early gives you longer to save and gives your money more time to earn compound interest, or interest on the interest you've already earned.
People generally need to save around 10% of their gross income if they start at 25, 15% starting at 35 and 20% starting at 40, according to Baker. "The longer they wait, the more they're going to have to put into retirement from their own income."
Even if you do everything right, you're unlikely to have all the money you'll need for retirement the day you stop working. You'll have to keep much of your savings planted in investments that earn more than the rate of inflation.
Remember the 4% rule of thumb? Financial planner William Bengen, who calculated that two decades ago, actually started with a 4.5% withdrawal, and assumed retirees would keep 53% of their savings in stocks and the rest in government bonds,
The T. Rowe Price study concluded that a more aggressive portfolio of 60% or even 80% stocks actually raises the odds that your money will last as long as you do. Or put another way, keeping your money in "safe," low-yield investments increases the risk that you'll run out of money before you die.
"You have to get the long-term growth of the market," Jennerjohn says. She adds that many advisors recommend having one to three years' worth of expenses in cash or cash equivalents to help ride out market downturns.
What is retirement, anyway?
Financial planners talk about the "go-go," "go-slow" and ultimately the "no-go" phases of retirement, as people travel the world, cut back and then stay put. The "go-go" years tend to cost more than later phases, although medical costs often spike in later years.
These days, many people don't want to collect their gold watch and immediately board a cruise ship. Instead, they're continuing to work part-time or even going back to school and launching second careers, such as moving from high-powered executive to teacher, according to Jennerjohn. "That's going to make it possible for people to kind of glide into not working, rather than drop into not working."
No matter how old you are, how much you've saved or what kind of sunset you have in mind, the biggest retirement mistake you can make is not planning for it. Now is better than later, or never.


Culled from US Today