Catch a Gideon

Make your Money Last - ch 20 Bogleheads Series

December 4th, 2006 by digerati

This is Chapter 20 in the Bogleheads series here at Catch a Gideon. We are going through each chapter in the book and letting you know what we learned from reading it. You should buy the Bogleheads Guide to Investing. It has more examples and more depth than I’m giving here, and is overall an excellent investment book.

Making Your Money Last Longer Than You Do

We’re all going to die. (Though not me….so far so good, right?)

The question to ask when retirement is coming: how much of my portfolio can I spend each year without running out of money? You don’t want to be left with no money and no means to earn more; nor do you want to leave your family with the responsibility of paying for you.

Factors to consider:

• Current value of your portfolio
• Date of birth
• Your portfolio returns every year leading up to your demise
• Your federal, state, local tax rates each year until you die
• Inflation rates
• Health care costs
• Amounts of your pension and any other income
• Future value of any real estate you may own
• All unanticipated changes in your pension and health care coverage.

Once you have all that information (hint: you’ll be guessing most of it) you can put the numbers in an online calculator that will leave you bouncing your last check the day you die.

Two Mistakes

Two mistakes are common. The first is to overspend in the early years. This means you can potentially run out of money later. The second mistake is to underspend. You should enjoy your retirement. Presumably you’ve worked hard for it. Don’t underspend because you are irrationally afraid of running out of money. Plan ahead.

It’s important to keep your withdrawels flexible. Keep your fixed costs low. Retirement is not the time to have an expensive mortgage or car payment.

It may be good to have a plan to earn income if necessary. Of course you can be a Walmart greeter, but other options could involve the internet or creating other passive income sources before retiring.

Delaying retirement can give you alot more money to play with, as will postponing social security payments as long as possible.

Buy the Bogleheads Guide to Investing.

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