Creative ways to ensure a comfortable retirement

by Jim Sloan

The commonly accepted rule is that you need at least a million dollars in your savings accounts or investments before you can retire comfortably and protect your principal with 4 percent annual withdrawals.

But is that necessarily true? Probably not; people are enjoying comfortable retirements with a lot less in the way of retirement savings accounts and investments.

In fact, the kind of lofty retirement advice that says you need a million in your savings accounts or money market account has probably done more to discourage people than it has to inspire them to save more. Some of us see $1 million and figure we might as well just give up and work for the rest of our lives.

Exceptions to the investments rule

According to TIME magazine's Moneyland website, the $1 million/4 percent rule is based on some pretty faulty assumptions.

One faulty assumption is that your only income will come from savings accounts and investments, such as stocks, a certificate of deposit or a money market account.

The truth is that you'll probably still be able to draw funds from Social Security, particularly if you're already retired or close to it. If you've been working all your life and paying into Social Security, this could be a nice monthly benefit, particularly if you wait until you're 70 before you start taking money.

Staying on the job

It's also true that you may decide to continue working, at least part time. Many businesses are allowing flexible work schedules and better retirement planning in an effort to keep older workers. Although the jobless rate for workers 55 and older climbed recently, the 6.8 percent unemployment rate for seniors is still far below the national average. If you're valued and jobs are available, why not keep working?

Other income-generating moves

The financial planners advocating the 4 percent rule may also not be taking into consideration other moves you can make to ensure a safe income during retirement, such as owning a home.

Although home prices have plummeted in recent years--wiping out equity that many of us expected to retire on--the poor home-buying market has created a stronger rental market in some areas. What that means is that you might consider renting out your big home when you outgrow it rather than selling it when prices are depressed. Rent payments that exceed your remaining home payments are a great way to increase your income while letting someone else pay off your mortgage.

Another option would be to start a small business now, before you retire, that you can easily keep going after retirement. You may not be looking at something that requires a lot of heavy lifting, but there are opportunities for "passive investments" such as mini storages that might fit the bill.

Whatever you do, it's important to have a specific plan. According to CBS' Moneywatch.com, this requires:

  • You decide at what age you and your spouse will start collecting Social Security. Most advisors recommend waiting until you're 70.
  • You determine how to consolidate your investments, including your savings accounts, IRAs, 401(k) and pensions, to generate retirement income.
  • How much income you'll need if you decide to keep working.

Ultimately, you'll have to manage your payouts--that original 4 percent number--and make adjustments as you need to. If your investments aren't performing like you'd hoped in retirement, you may have to withdraw less. On the other hand, a strong stock market could give you enough to take that long vacation you always dreamed about.

Disclaimer:This content is not provided or commissioned by American Express. Opinions expressed here are author's alone, not those of American Express, and have not been reviewed, approved or otherwise endorsed by American Express. This site may be compensated through American Express Affiliate Program.

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