I’m not near “retirement age” yet but I think about it often. I suppose for individuals in their 50s and 60s, they are forced to think about retirement and how to fund it more often than they care to admit. No doubt recent stock market volatility has forced many people to question if they can retire at all, if so by when and how much might be enough.
Most personal finance and investment books I’ve read focus on asset accumulation tactics: saving for retirement, what investments you should own, what accounts you should use over other accounts but few investing books get into how those same investments should be optimized or changed for retirement. This is an underappreciated body of knowledge that should be written about more in my opinion; asset accumulation doesn’t mean a thing unless you have an asset preservation strategy to go along with it.
Today’s post will share a couple of retirement perspectives I have as we march towards retirement.
Perspective # 1 – Creating a dependable income stream from personal savings
I’ve shared on my site before what I think we might spend in retirement. These are certainly assumptions at this point since we have no idea what the future has in store for us. I have a high-level of confidence though we will not need the same level of income (adjusted for inflation) in our retirement years when compared to our working years now. I anticipate the mortgage will be gone as will all consumer debt at the time of retirement. From this perspective, we should not require the same income stream in retirement as we do today since we are not servicing large amounts of debt. (About 40% of our net income today goes to servicing debt this includes base mortgage payments, lump sum mortgage payments and a small car loan that will last two more years).
To replace our full-time salaried income in retirement we’ll need some reliable income streams. We anticipate those income streams will come from the following personal savings sources:
- Dividend income from stocks, and
- Distribution income from Exchange Traded Funds (ETFs).
Our goal, although it’s admittedly a stretch goal, is to eventually have about $30,000 in dividends and distributions paid to us each year from our investments to cover some living expenses. Pension income will be another source of retirement income outside of our personal savings. I’m assuming the capital from our mix of dividends and distributions will generate an income of about 4% per year, every year, so I’ll leave you with the math to figure out what our personal savings “enough” number might be.
Perspective # 2 – Creating a variable income stream from part-time work
With the mortgage and all consumer debt gone at the time of retirement, I’m anticipating no debt will open up a world of possibilities for us. One of the possibilities we will explore once we’re debt-free is a transition from two (2) full-time jobs to part-time jobs. Sure, if one of us or both of us loves the work we do, there is no reason to change and I suspect we’ll continue working full-time. On the other hand there are no guarantees with job market.
At minimum, we’ll need full-time jobs until we kill our debt and as we build our assets for dividend and distribution income, part-time jobs won’t do the trick. The need to work after our debt is retired will largely depend upon 1) what our expenses will be and 2) what income can be generated from our investments at that time. Until our debt is gone our financial plan is really rather simple: keep working hard, keep saving and stay invested as much as possible.
If you’re working towards retirement, what comes to mind? If you’re already in retirement or transitioning to retirement, what comes to mind?