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Retirement: Don’t Outlive Your Money

CHICAGO — “Retirement” has a new meaning these days. For the fortunate ones, it still means a life of leisure: relaxing, gardening, golf, and perhaps an occasional trip. For others, it will mean continuing to work part-time to supplement Social Security and inadequate retirement savings. For most, it will mean switching from a lifetime of increasing income to a new life of decreasing income. For everyone, it will mean a new importance to skillful money management, the need to make sure that we don’t outlive our money.

The psychological adjustment necessary to move from saver to spender can be distressing since there’s no magic bullet to melt away all of our concerns, but a carefully planned approach to managing your money in retirement will go a long way to ease the transition. Whether your retirement is a long way off or just over the horizon, following these guidelines will help:


Every month, review your latest statements from banks and brokerages to add up your total manageable assets. Don’t forget to include any cash on hand, CDs, etc. This is not a net worth statement; don’t include liabilities or the value of real estate, cars, etc.

This way, you will know exactly where you stand each month in managing your money, whether your finances are higher or lower, and by how much. This important knowledge can be a big help in deciding your future course of action.


As we get older, it becomes easier to make mistakes. The less complex your finances, the easier it will be to keep track of the essentials. Wherever possible, consolidate bank accounts, brokerage accounts, and retirement accounts into the fewest possible. Limit yourself to one credit card—two at the most. Simplifying your finances in this way will make it easier for you to analyze and manage your assets. An extra bonus will fall to your heirs who will benefit from your simplified financial picture when you pass on.


During your savings years, you have probably learned the importance of diversifying and allocating your assets. After retirement, this aspect of managing your finances is at least, if not more, important than ever.

Diversifying your assets so that you are not too heavily invested in one company or industry will avoid the obvious damage to your portfolio should a serious failure occur in one company or industry.

Once your assets are properly diversified, it’s important to allocate those assets among the three broad classes of investments: stocks, bonds, and cash. For example, your allocations might look something like this:

  • During pre-retirement and early retirement years — Stocks, 60%; bonds, 35%; cash, 5%
  • During mid-retirement years — Stocks, 40%; bonds, 50%; cash, 10%
  • During later retirement years — Stocks, 20%; bonds, 50%; cash, 30%

These, of course, are only guidelines. Your actual allocations will vary according to your own risk tolerance and preferences. Experts agree, however, that, in general, as one ages, investments in stocks should decrease in favor of bonds and cash.


Chances are that at least one of your asset classes has grown or shrunk enough to change your allocations from your plan. When that happens, it’s time to re-balance to get your allocations back on target by selling one asset and shifting the money to the other assets as necessary.


Regardless of your allocation strategy, you should maintain a year’s worth of cash. Add up your dependable income such as Social Security and pension and add enough cash to cover your expected expenses for one year. You don’t want to be put in a position of having to sell an asset at an inconvenient time in order to pay a bill.


One old admonition warns that you must never touch your principal. In actual practice, it’s a rare individual who is wealthy enough to live in retirement entirely on dividends and interest alone. For those who expect to tap into their principal, the 4% rule is widely recommended as a guideline. Here’s how it works:

According to many economists, all you need to do is withdraw 4% of your nest egg the first year of retirement, increase that dollar amount each year by the rate of inflation to maintain your purchasing power, and that will give you 90% assurance that your savings will last at least 30 years.

As you might expect, not everyone agrees that the 4% rule will work for everyone. Still, it’s been around long enough to merit consideration. Keep in mind that after you reach age 70½, required minimum distributions from your tax-deferred retirement accounts will provide cash in amounts depending on the size of those accounts.

There are, of course, many other aspects of managing money in retirement too numerous to mention here, including such things as maintaining appropriate insurance coverage, when to file for Social Security benefits, learning what Medicare will or won’t cover, and the importance of creating an estate plan.

However, following the basic guidelines in this article will provide you with a solid foundation for creating your total plan.

You may also want to consider reviewing your situation with a professional financial planner. The transition from saver to spender can be a stressful experience and a little personal guidance can help to smooth out some of the inevitable bumps in the road.

Information in this article is provided for educational and reference purposes only. It is not intended to provide specific advice or individual recommendations.

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Have a question or comment? E-mail our editor Dave Davis at [email protected] .