Could a retiree outlive his savings even with a part-time job? Possibly.

Written by
Peter Dunn

Dear Pete,

I just retired at 60. I am a single, head-of-household male with no children. When I retired, my annual salary was about $120,000. I have had my mortgage paid off for about four years and have no monthly debt load. I have approximately $1.7 million in investable assets.

The job I left offered no real pension once I retired. Even though I have taken a part-time job (six months per year, very flexible consulting work ), I am still concerned about outliving my savings. Am I nuts to be concerned? – Dean

I never tell a person not to worry, whether they should be worried or not. We’re all wired differently. Instead, I’m going to use our time together to illuminate a path to success and to help you identify some circumstances that could upend your plans.

I’m concerned you didn’t mention your current income. In fact, I’ve convinced myself you don’t know what it is. If that’s the case, that’s a problem. Sure, you likely make a variable level of income from your consulting gig, but how much is that and how does it set your lifestyle? If you make less, do you spend less? Or do you supplement an arbitrary amount of income with an arbitrary withdrawal from your nest egg?

Your nest egg, as you’ve acknowledged, is not a bottomless bowl of M&Ms grandma sets out around the holidays. Your dollars are finite. And if you withdraw them indiscriminately, your fear of depletion is warranted.

I can only assume you lived on your $120,000 salary and that standard of living has continued into your new retirement. You paid off your home and your debt before retirement, which is fantastic. However, that doesn’t necessarily mean you then set aside the money that previously satisfied those debts as savings on a monthly basis. If you didn’t, then you increased your lifestyle heading into retirement, which is common, but not great.

In fact, paying off major debts just before retirement can be incredibly dangerous because of the risk of increased discretionary income increasing your lifestyle, heading toward a period of time (retirement) in which your available income is likely to decrease.

Additionally, if at retirement you became solely responsible for your health insurance premiums, then your monthly obligations increased the moment your income theoretically decreased. Assuming full responsibility for insurance premiums for the first time in a long time can shock the system, and the wallet.

Whether you like it or not, you need a budget.

You must determine exactly how much all of your monthly obligations cost you. Once you’ve found this number, you have to ask yourself a very vital question – Is this sustainable? I’ve convinced myself you don’t know the number, and in turn, can’t possibly confirm its viability.

For instance, if you spend $6,500 per month consistently, then you must assign income to handle those expenses every month. If you simply spend “whatever feels right,” you’ll find yourself broke in a decade.

The importance of homing in on your true living expenses is especially practical as you approach the age in which you’ll activate your Social Security retirement benefits. It’s not uncommon for a person who’s been retired for a few years to unintentionally increase their lifestyle once Social Security income kicks in. This generally happens when a retiree operates without a budget.

Look, I fully understand how unappealing budgeting is, especially once you’ve worked so long and hard to provide yourself an adequate retirement. But it’s because you’ve worked so long and hard that you owe yourself the benefits budgeting provides.

Even $1.7 million can disappear in a relatively short period of time if you refuse to budget. To replicate the lifestyle ($120,000 annually) you’ve just left behind in the workplace, you’d need to withdraw 7% of your nest egg on an annual basis. That is not a sustainable plan. The more consulting income you earn, the less you’ll have to withdraw.

You also need to take the time to think through how your consulting income will wane. Will it gradually decrease over time as you purposefully put in fewer hours? Or will your income come to a screeching halt, whether it's voluntary or placed upon you. Too often, retirees who are working part time wrongly assume they alone dictate the continued viability of their part-time income strategy.

The pieces of a successful retirement are all there for you. Just be sure to assemble them correctly.

This article is published courtesy of USA Today.

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