Saturday, June 27, 2015

You Can Save During Retirement, Too

My last few posts have encouraged readers to develop a reasonable spending budget in retirement each year by aggregating specific expense components.  For example, in our post of June 7, Don’t Just Tap your Savings; Develop a Reasonable Spending Budget, our hypothetical retiree, Mary, separated her total budget into the following components:
  • Essential non-health-related expenses
  • Essential health-related expenses
  • Bequest motive/end-of-life long-term care
  • Other unexpected expenses, and
  • Non-essential expenses
Mary had different investment and desired payout strategies for these various components.   Therefore, she treated them differently in her planning. 

After our post of June 12, Good Time for Retirees to Stress Test Their Investment/Spending Strategies, in which we discussed some statistics that predict a bear market will likely be coming at some point in the future, I received an email from Colin from Massachusetts suggesting that it might be wise for Mary and other retirees to possibly “beef-up” their “other unexpected expenses” budgets during bull market periods in anticipation of future bear markets.  I agree.

Even though retirement is generally a period of “decumulation” rather than savings accumulation, there is no requirement for you to spend all your experience gains during good times.  The concept of having a “rainy day” fund still applies to retirees.  Therefore, if you do experience gains from investment experience or from spending less than your budget, you may want to consider where you stand in the current economic cycle and put some of those gains aside in the “other unexpected expenses” component of your total spending budget in anticipation of a future bear market.

Thanks again to Colin from Massachusetts for his suggestion.  I am always happy to pass along good ideas from my readers.