June 1, 2020

If you’re nest-egg is getting a short-term pinch, it’s time to make do with less for a while

Those of us who are living on income from our retirement savings – drawing down from a big nest egg – are probably feeling like they are a GPS system in a car these days. Thanks to volatile investment conditions, the route has changed – and it’s time to recalculate.

An article on the Toronto.com site offers some interesting tips on how to cope with unpredictable income from volatile markets.

Those who “have seen that your stocks have been hit hard,” and who “realize they could fall further,” need “to act cautiously to bolster your finances without necessarily doing anything drastic, at least for now,” the article suggests.

“One simple but smart strategy is to find sensible ways to trim your spending once day-to-day living conditions return closer to normal. The comparison point is your expenditures before the (pandemic) struck,” the article explains. Don’t, the folks at Toronto.com add, base your “back to normal” spending on what you were doing during the pandemic, as “that doesn’t provide a useful model for spending prudently in normal times,” the article advises.

“A planned trim to spending is something you can do quickly; you can cut just what you feel you need to, then loosen the purse strings later when your portfolio eventually recovers. If conditions get worse, you can cut further, but only when and if required,” the article states.

The article points out that at age 65, the rule of thumb is that you need $25 of invested income for every dollar you want to take out and spend. If you expect your income will be depleted due to poor markets, it’s a time to take out less, not more, the article notes.

“While the relationship between spending and the current size of your portfolio will usually vary in subsequent years after you retire, you get the picture that you need a pretty sizable chunk of money in your nest egg to support each $1 of spending. So if you can cut a chunk out of spending without hurting your lifestyle too much, you can take a lot of pressure off a stressed portfolio and increase the odds your savings will last as long as you need it to.”

This great advice is worth heeding.

Members of the Saskatchewan Pension Plan can choose a different approach to managing their retirement income. An option they can choose is the life annuity – with this approach, SPP converts some or all of your account balance at retirement to a guaranteed, monthly payment that you’ll receive every month for the rest of your life. It can continue to a spouse or other beneficiary depending on what annuity option you select. Annuity recipients don’t have to worry about market conditions – however threatening the financial weather may be, they get the same amount every month.

Written by Martin Biefer
Martin Biefer is Senior Pension Writer at Avery & Kerr Communications in Nepean, Ontario. A veteran reporter, editor and pension communicator, he’s now a freelancer. Interests include golf, line dancing, classic rock, and darts. You can follow him on Twitter – his handle is @AveryKerr22

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