Whatever your retirement dreams are, they can still come true. It just depends on how you plan and manage your resources. On any trip, it helps to have an idea of ​​where you’re going, how you plan to travel, and what you want to do when you get there.

If this sounds like a vacation, well, it should be. Most people spend more time planning a vacation than something like retirement. And if you think of retirement as the next act in your life and approach it appropriately, you won’t get bored as easily or run out of money to continue the journey or get lost and make bad financial decisions along the way.

It’s how you handle it that counts

How much you really need depends on the lifestyle you hope to have. And it’s not necessarily true that your expenses will decrease in retirement. Assuming you have an idea of ​​what your annual expenses might be in today’s dollars, you now have a target to aim for in your planning and investing.

Add up the income from the sources you expect in retirement. This can include Social Security benefits (the system is solvent for at least 25 years), any pensions (if you’re lucky enough to have an employer-sponsored plan), and any income from jobs or that new career.

Endowment Expenses: Imagine You’re Like Harvard or Yale

Consider taking the same approach that keeps large organizations and environments running. They plan to be around for a long time, so they aim for a spend rate that allows the organization to sustain itself.

1.Calculate your gap– Take your budget, subtract expected income sources, and use the result as your target for your withdrawals. Keep this number to no more than 4-5% of your total investment portfolio.

2.Use a combined approach: Each year look to increase or decrease your withdrawals based on 90% of the prior year’s rate and 10% of the investment portfolio’s return. If it goes up, you get a raise. If investment values ​​go down, you have to tighten your belt. This works well in times of inflation to help you maintain your lifestyle.

3. stay invested: You may be tempted to leave the stock market. But despite the roller coaster we’ve had, it’s still prudent to have a portion allocated to stocks. Given that people live longer, you might want to use this rule of thumb for your stock allocation: 128 minus your age. Regardless, you really should keep at least 30% of your investment portfolio (not including safety net money) in stocks.

If you think the stock market is scary because it’s prone to periods of wild swings, consider the risk inflation will have on your purchasing power. Historically, bonds and CDs alone do not keep pace with inflation. Only stock investments have demonstrated this ability.

Aim to invest smart. While asset allocation makes sense, you don’t have to be wedded to “buy and hold” and accept being bounced around like a yo-yo. Your main assignment can be supplemented with more tactical or defensive investments. And you can change the combination of actions to dampen the effects of the roller coaster. Consider including stocks of large dividend-paying companies. And add asset classes that aren’t tied to the ups and downs of major market indices. These alternatives will change over time, but the defensive ring around your core must be reassessed from time to time to add things like commodities (oil, agricultural products), commodity producers (mining companies), distribution companies (oil pipelines), convertible bonds and managed futures. .

4.Invest to earn income: Don’t just trust bonds that have their own set of risks compared to stocks. (Think about credit default risk or the impact of higher interest rates on your bond’s fixed income coupon.)

Combine your bond holdings to take advantage of the features of different types of bonds. To protect yourself against the negative impact of higher interest rates, consider floating rate corporate notes or a mutual fund that includes them. By adding high-yield bonds to the mix, you’ll also provide some protection against potential higher interest rates. While they are called junk bonds for a reason, they may not actually be as risky as other bonds. Add Treasury Inflation Protected Securities (TIPS) which are backed by the full faith and credit of the US government. Add emerging country bonds. While there is currency risk, many of these countries do not have the same structural deficits or economic problems that the US and developed countries have. Many learned the lesson of the debt crisis of the late 1990s and did not invest in the exotic bonds created by financial engineers on Wall Street.

Include dividend-paying stocks or stock mutual funds in your mix. Large foreign companies are great sources of dividends. Unlike the US, there are more companies in Europe that tend to pay dividends. And they pay monthly instead of quarterly like here in the US. Balance this with hybrid investments like convertible bonds that pay interest and offer upward appreciation.

5. Build a safety net: To get a good night’s sleep, use a bucket approach by dipping into the investment bucket to replenish the reserve that should have 2 years of spending on near-cash investments: savings, stepped CDs, and fixed annuities.

Yes, I said annuities. This safety net is backed by three legs, so you’re not putting all your eggs in an annuity, let alone a certain-term annuity. For many this can be a dirty word. But the best way to get a good night’s sleep is to know that your “must have” expenses are covered. You can get relatively low-cost fixed annuities without all the bells, whistles, and complexity of other types of annuities. (While tempting, I’d tend to pass on “bonus” annuities due to the long schedule of surrender charges.) You can stagger your terms (1 year, 2 years, 3 years and 5 years) just like CDs. To minimize exposure to any one insurer, you should also consider spreading them out to more than one well-rated insurance company.