As retirement draws near there is no reason to cut back on savings. Nobody has ever gotten into retirement and said they saved too much money. In fact most people are happy to have more than they need for themselves so they can spend money on their loved ones. All the way up until you stop working, keep putting as much as you can into your retirement plan or SIPP pension scheme, you can always spend it later.
As you get closer to retirement, your risk tolerance will decline. 5 years before you retire you should be the most conservative you have ever been. This will help preserve as much capital as possible in the event of a market downturn when the time to retire comes. Maintaining several years’ worth of living expenses in cash will allow the retiree to live without selling low if that downturn does come. Want to reallocate the easy way? Use target date funds. They will automatically move you to a more conservative mix as you approach retirement.
Before you retire you should have a good handle on what your expenses are, and an idea of what they will be in retirement. After you retire, monitoring expenses and getting a feel for how much money is actually going out for a few years will allow you to know for sure how much you will need each month to live. Once you are comfortable with your outflow, you can move your portfolio to take on a little more risk. The cash you have will keep you from selling at a market low; the risk will help grow your portfolio to maintain a steady increase in value.
Expect the Unexpected
People are living longer than ever. While the average lifespan is still around 80 years old, many are living well past that time. By planning to live to 100, the individual will make sure he or she has enough to cover expenses. As one grows older medical expenses will increase, inflation will always be around, houses may need remodeled to accommodate frailer bodies, and care in a nursing facility may be required (have you learned about long term care insurance?). While government jobs usually provide a safety net, how much is a state pension compared to several years ago? With municipalities in financial trouble, how much will it be in the future?
Many people do not know when to retire. While the government tells us we should be working until age 66, there is no set timeline for all people. Some will never truly retire; others will save more while young and retire early. When do you want to be in a position to no longer have to work? Simply plan to accumulate enough money by that time, and as you approach retirement, follow your plan.