In these tough markets, a plan for retirement is essential, writes The Motley Fool

These days, thousands of people are so insecure about being able to make ends meet after they retire that they’re seriously considering delaying retirement or even heading back into the workforce, effectively un-retiring.

But if you’ve done at least a good enough job to give yourself a sporting chance of having your nest egg last throughout your retired years, then some smart money management can make a huge difference in your standard of living.

The challenges of retiring
No one said it’s easy to retire. In one fell swoop, you’ll lose a big pay cheque and face the need to make your savings last a lifetime. But even in this tough economic environment, you can take a few steps to put yourself in the best position to succeed. Let’s take a look at three ideas:

1. Get your cash ready.
The worst thing in the world is to have to sell shares at exactly the wrong time. As Sheryl Garrett of the Garrett Planning Network told The Wall Street Journal recently, one of the toughest obstacles to overcome right after you retire is a down market that lasts for several years. As Garrett put it, “If you retire when the market goes up for a few years, you’re going to be sitting pretty. … But if you have a few bad years in a row, you’re in trouble.”

The best way to avoid the impact of those bad years is to have a substantial amount of cash built up before you retire. That way, if you get those bad years early on in your retirement, then you can still afford to wait until a recovery comes before replenishing your cash coffers by selling off investments.

But during normal times, you can maintain your normal strategy to take advantage of strong periods for the financial markets and keep your savings levels high.

2. Get investments that will pay you well.
With 10-year Australian government bonds paying around 4 per cent and bank term deposit rates on the slide, you can’t afford to sit back and do nothing with your income portfolio.

But you also don’t want to get too aggressive by shooting for the moon with risky shares. And that risk takes different forms: For instance, high-yielding dividend stocks can be just as risky as expensive high-growth stocks under certain conditions — especially when investors are reaching for yield.

The right middle ground could be to look for cheap shares that produce reasonable if not excessive dividends. For instance, BHP Billiton (ASX: BHP) , Westfield Group (ASX: WDC) , and Westpac Banking Corporation (ASX: WBC) make an eclectic mix, but they combine three favorable traits: They give you diversification while also providing decent dividend income at inexpensive valuations. With the threat of a new bear market coming, that protection won’t save you from losses entirely — but it can help you cushion any future blow.

3. Sell the right stocks.
Even with relatively safe dividend stocks, most retirees won’t be able to generate enough income from their portfolios without selling off some of their assets occasionally.

Often, the thing people are least willing to do is to sell their losers whilst they are down in the dumps. But often, they are losers for good reason.

It’s hard to imagine Qantas Airways Limited (ASX: QAN) regaining their former glories. We’ve previously warned investors about the pitfalls of investing in a company like OneSteel (ASX: OST).

Many investors prefer to dump their high-flying stocks, hoping their losers will somehow recover. Hope is not a winning strategy.

Go ahead and get ready to retire
Convincing yourself that you need to work the rest of your life is a sad fate. With just a few simple adjustments to your finances, you may turn pessimism to success.

Once you’re convinced you can retire, get on the path to do it the best way you can.

Are you worried about the falling sharemarket? Make sure you Read This Before The Next Market Crash. It’s a free report from The Motley Fool, and taking its advice could save you thousands. Click here to request your copy, whilst it’s still free and available.

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