Erickson Advisors - Linda Erickson - Headshot Linda P. Erickson

Linda P. Erickson, CFP®, is the president of Erickson Advisors and a registered principal offering securities and advisory services through Cetera Advisor Networks, LLC. Contact her at 336-274-9403.

Prepare now and review regularly to stay on the right track for the retirement lifestyle you want.

  • DO know your sources of income: Social Security net deposit, Pension income (if you are lucky enough to have one) and any Deferred Compensation or Annuity income. Now list your other sources of supplementary income: investment accounts, bank balances, IRAs or 401k plan balances.
  • DON’T fixate on a “number” or total balance figure to achieve in those investment accounts and think that will set you up for life. This “need number” is a moving target.
  • DO know what you need to live on in retirement, and how long you want that income to last. We recommend assuming at least one person of a couple will live into his or her mid-90’s.
  • A Must Do “DO” of that exercise is to separate out your Wants from your Needs. Needs are basic living costs such as housing, food, utilities, notes payable – you know what I mean here. Your Wants are all the other things that make retirement wonderful – travel, entertainment, eating out, discretionary charges to your credit cards. “Need” is a moving target based on inflation, health, or family change of circumstance; “Wants” are those lifestyle expenses which can or must be cut or reduced in those years when distributions from your investment accounts should be pared back.

Knowing what you need to supplement the income which will be deposited monthly into your bank account should not exceed 4% of your total portfolio at the start of retirement. This is the current thinking in today’s low inflation, low interest environment. If this 4% withdrawal only covers your basic Needs, you should consult with a professional. Ask her how your plan can be adjusted when investments decline to the point where that same 4% does not give you your basic living needs. Inflation can also greatly alter retirement income plans: If your expenses grow by 5% and your total income from all sources does not cover your need, you will need to adjust somewhere. My experience is that people will simply withdraw more. Beware here, excessive withdrawals create a downward spiral which you want to avoid at all costs.

If you have a lifestyle which is supported by a 4% withdrawal, but your Needs are covered by only 2%, you are in excellent shape to weather a market downturn. Your Wants come from the other 2%, and when necessary you can delay travel or other discretionary spending until market conditions bring your portfolio balances back up to support both Wants and Needs without excessive withdrawals.

After a lifetime of investing and saving with an “Accumulation” strategy, transitioning to a new strategy of “Retirement Spending” may be difficult. Make no mistake, however, we all will have to transition to the new mindset. And it doesn’t matter how well prepared you may or may not be. We all have the same question: “Will I have enough?”.

Plan Now, but remember to review that plan regularly so as to be able Live Now.