Surprises are foolish things. The pleasure is not enhanced, and the inconvenience is often considerable.—Jane Austen

unwelcome surprisesAnd that can also sometimes be said for financial surprises in retirement.

As David Ning writes in a fine piece, “surprises routinely catch retirees off guard. Here is how your budget will change after you quit your job.”

“Your investment time horizon should be decades past your retirement date. You might determine your asset allocation based on when you expect to retire. But your investments need to last for the rest of your life, which could span a few decades past your retirement date. Inflation hasn’t been a big problem in the past few years, but price increases could once again reduce your purchasing power in retirement. It’s prudent to invest more conservatively as you age, but almost all retirees will need some stocks to combat the rising cost of living. Unless you have saved more money for retirement than you could ever spend, you are likely to continue to need growth in your portfolio during your retirement years.

“The withdrawal phase can be more challenging than saving. You might think that saving enough to retire would be the hard part. But it’s actually pretty complicated to withdraw money for regular expenses in retirement, because money withdrawn from various investments has different tax consequences. You need to decide where the money will come from, when to take money out and which investments work best in retirement, all of which could make a noticeable difference in how much you can safely withdraw and how quickly your portfolio will be depleted. Uncle Sam will get a cut whenever you sell an investment that has capital gains or withdraw money from a traditional retirement account, and the tax consequences should play a role in how you draw down your retirement savings. It’s a good idea to write down your withdrawal strategy before you retire, that way emotions won’t get in the way when markets are volatile and someone you trust can help carry out the plan in the event you can’t manage everything yourself.

“Sticking to a fixed withdrawal rate will be nearly impossible. Nobody’s expenses follow a steady and straight line each year, and your annual increase in costs probably won’t match the published inflation rate. The volatile nature of annual spending could catch retirees off guard, because many people have carefully calculated a safe withdrawal rate. The standard 4 percent safe withdrawal figure assumes that your spending will follow the inflation rate every single year. While it’s still a useful exercise to decide upon a safe withdrawal rate, realize that you might not be able to stick to it. You might have an emergency one year and need to withdraw more, and be able to get by with a 3 percent withdrawal rate another year.

“There are many opportunities to cut expenses. Retirees often report a decrease in spending as they age. In some cases there is a slow reduction in living standards. However, quite a few retirees have more time to look for savings after they quit the 9-to-5 grind. You can cut out all the unnecessary expenses in your budget, select the most cost-effective time to travel and wait for merchandise to go on sale before you buy what you want. In this case, you can spend less while maintaining your living standard by investing some of your time to save money. You can also seek out low-cost and even free forms of entertainment, which will allow you to increase your quality of life without spending more in the process.

“No matter how much time you spend thinking about retirement, there will be many surprises once you actually hand your boss a resignation letter. You can’t prepare for every possible retirement scenario, and will have to cope with financial challenges as they come.”