Now you’ve made it to the age of 60. The kids are gone, the mortgage is almost paid off and it’s time for the retirement accounts to start paying out. Gas up the yacht, honey, we’re headed for the Caribbean!
Hang on, Ahab. The temptation is to switch from saving to spending immediately. But retirement is a beginning, not an end. We are living longer now than ever before. This means that if you want to stop working at 60, you’d better be ready to make it last a good 25 years or longer.
The conventional wisdom suggests going for safety by moving out of stocks and into bonds, REITs, money markets and other investments that produce regular income. Perpetual income sounds good, but it’s a trap. You may be earning a respectable income right now from your savings, but 20 years down the line inflation will have taken a big bite out of your buying power. For people 75 and older, 14 percent of all spending went to health care in 1997, and costs continue to shoot up. Who knows what they’ll be in 20 years?
If you can get by with less current income in the early years of retirement, you can maintain a portion in stocks to keep your principal savings from eroding. Stocks may fall in the short term, but odds are they will do better than any other investment over 10 years. With this kind of saving, maybe you’ll spend less time in Paris and more in the backyard, but it can add to your future quality of life.
