Be flexible once you quit

NEW YORK (Money Magazine) -- Making your money last through decades of retirement requires, first of all, a mental adjustment. You must make the transition from career mode, where the prospect of future raises allows a somewhat freespending lifestyle, to retirement mode, which requires more caution.

Pam Reynolds, 58, who retired from IBM after a 30-year career, is grappling with that adjustment now. When she left Big Blue five years ago, Reynolds was making $200,000. Today, she's living mostly off her $54,000-a-year pension.

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"Before I didn't have to stop and think about what I was going to buy," she says. "That's been the biggest change in retirement - trying to trim my spending."

One solution: Make a virtue of free time."The jobs I used to 'outsource' when I was working - gardening, housework, washing the car - I now do myself," she says.

Reynolds has a cushion of about $600,000, mostly in retirement accounts, that she plans to tap later. To give herself more maneuvering room, she's considering working part time as a marketing consultant for a local charity.

"It will give me more cash flow until I start drawing on my retirement accounts," she says.

That kind of attention to how you'll stretch out your investment portfolio is especially crucial for early retirees.

As a rule of thumb, if you limit the initial payout from your savings to 4 percent (or less), odds are high that your savings will last for 30 to 40 years, even if you increase your withdrawal each year to keep up with inflation.

That 4 percent figure isn't etched in stone. If you run into a big market meltdown early in retirement, you could run short even with a 4 percent withdrawal rate. On the other hand, if the stock market cruises along, you'll probably be able to spend more.

You improve your chances of keeping the money flowing if you manage your taxes and investment strategy as wisely as your spending. In most cases, you'll first want to use up savings that have already been taxed (like ordinary bank and brokerage accounts) and let tax-deferred accounts like IRAs and 401(k)s keep growing.

And never stop investing aggressively: You still need a healthy dose of stocks even after you leave your job so that you can keep up with inflation. If you retire at, say, 55, keep roughly 60 percent of your portfolio in stocks and then gradually reduce that percentage as you age, perhaps lowering it to 30 percent or so by the time you're in your late seventies.

In the end, early retirement really comes down to choices: When to leave your career, how to balance downtime with work, and how to manage your resources so you have financial security.

But the sooner you plan for it - and the more you save during your career - the more appealing those choices will be.

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