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- Consider putting off retirement. The simplest solution may be waiting to retire until the market is firmly back in positive territory. You may still have to deal with future dips, but at least you're not starting out by scooping money from a shrinking pool. "Our advice right now is that if you don't have to retire, don't," Fahlund says. "Of course, a lot of people don't have a choice. They're already retired or being forced out."
If that's the case:
- Consider part-time work. Whatever you can do to reduce your initial withdrawals will help stretch your nest egg. "A part-time job that pays $20,000 . . . is the equivalent of having saved an extra $500,000," Fahlund says, because a 4% withdrawal of $500,000 would produce $20,000.
- Trim or freeze withdrawals in bad markets. Financial planners differ on how much and when you should cut back, but the T. Rowe Price simulations found an investor who retired in 2000 with a 4% withdrawal rate would be unlikely to run out of money if he trimmed that initial withdrawal amount by 25% within two years. That's a drastic cut, though, and one most people would be unwilling or unable to make, Fahlund says. An alternative is to freeze your withdrawal in a bad year, then for one or two years afterward. "When it's time to take that 3% increase, don't take it," Fahlund recommends. "Defer that (increase) for up to three years. You can manage on literally a fixed income for that time." You can explore the numbers using MSN Money's retirement income calculator.
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- Set aside a cash cushion. Gang's company insists its retired clients keep at least one year's worth of expenses in cash or cash equivalents, such as short-term-bond funds. That stash grows to two years if the client doesn't have a large guaranteed income stream, such as a pension, to cover most expenses. A fat cash cushion also can give you the comfort level to ride out market downturns without panicking and selling. "The whole idea is to protect the grocery money and help manage behavior," Gang says.
- Keep your home equity on tap. Selling your home or using a reverse mortgage to extract its value might be a reasonable way to supplement your retirement income if you have substantial equity, as I discuss in "55 and haven't saved a dime? Yikes." The problem here is obvious: With today's declining home values, you may get less out of your house than if you wait for the real-estate market to recover. But no one really knows how long that will take. Talk to your financial planner about your options, but if you don't need your equity to make ends meet, you could be wise putting off a sale or reverse mortgage until market conditions improve.
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Paying for retirementYour retirement could last decades. Here are tips for living well for as long as you need.
Liz Pulliam Weston is the Web's most-read personal-finance writer. She is the author of several books, most recently "Your Credit Score: Your Money & What's at Stake." Weston's award-winning columns appear every Monday and Thursday, exclusively on MSN Money. She also answers reader questions on the Your Money message board and helps middle-class families cope at Building a Brighter Future.
Updated June 23, 2009
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