How to Maintain Your Standard of Living in Retirement

Here’s how to pay your retirement bills without a regular paycheck.

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Most people want to retire with the same standard of living they enjoy while working. But how do you set that up without earning a paycheck? Here are a few suggestions:

David Ning
David Ning
Live below your means and save throughout your working career. I know this is the most boring piece of advice, but you need to hear this again. There are no secrets to building enough wealth for a comfortable retirement. Your ability to save is the single most important factor in determining how much you will accumulate by retirement. Think twice next time you want to overspend just because retirement seems far away.

Don't dial up the risk-o-meter. Stocks, equity in promising startups and other risky ventures have one of the highest expected returns of any investment you can make, but the range of outcomes is much less unpredictable than risk-free investments. By loading up on volatile investments you could end up wealthy beyond your wildest dreams come retirement time, or you could be left with a portfolio so puny a life of Ramen seems extravagant. How lucky do you feel today?

Beware of the effects of inflation. Inflation that amounts to a 2 or 3 percent erosion of your spending power is basically compound interest in reverse. While you don't want to go all in on risky investments, you ought to have at least part of your portfolio in investments that can match or beat inflation over the long term. The key is moderation. It’s not a good idea to just invest in CDs, because you are locking in the chances of losing purchasing power through time.

Fix the interest rates of your debt. Interest rates are still extremely low, and you don't want to be caught with variable rates if rates rise further. If at all possible, take out loans that have a fixed rate to avoid payment shock. Even if that's not possible, make sure to obtain loans that have a ceiling of how much rates can rise.

Don't blindly chase yield. Always remember, there's no free lunch. Whichever investment is offering a higher yield than the risk-free rate is betting on the chance that you'll get a return less than the risk-free rate. Some investments may be worth the risk, but always be mindful that high yield is high for a reason.

Consider longevity insurance. The beauty of a pension isn't so much the amount that's on the check, but the consistency of the income. Knowing a check is always in the mail is so calming. Consider annuities, even if the math seems to vote against one, because knowing you'll never run out of money even if you live forever might just help you live longer.

Know as many details as possible about how much you spend. There's no other way to know whether you can maintain your standard of living unless you know how much you are currently spending. Make sure you include expenses that are infrequent but bound to come up, like house maintenance bills or property taxes, to get a more complete picture.

Cut every expense that doesn't matter much to you. The vast majority of people who scrutinize their expenses will find at least a few items that aren’t adding value to their lives. Even if you don't see them at first glance, I encourage you to cut some non-essential services to test drive how your life will change without that expense. Cut the cable TV bill and join Netflix for a few months. If you hate not flipping through channels, no problem, just get your service reconnected. You still win because you save on the months you didn't have service, and you can likely qualify for new customer coupon codes the cable companies like to advertise. On the other hand, you may find what you thought was really important to your life isn't worth the cost at all. The better news is that whatever you cut will forever be out of your budget, free from inflation increases and customer support headaches too.

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