Could You Be Spending More in Retirement? Ep #219

Have you ever wondered how much of your retirement savings you may never get to spend?

Retirees often struggle to transition from saving to spending. Partly due to the inherent uncertainties a retiree will face. These uncertainties create an impulse to delay spending, so they don’t run out of retirement savings.

In this episode, we discuss key insights and behavioral patterns found that prevent retirees from spending what their plan allows and ways to gain more confidence so you can balance spending throughout retirement.

Why many don’t spend as much as they can in retirement

Are you spending less than what you could be spending in retirement?

Shockingly, most current retirees still have the same pre-retirement savings after two decades of retirement, and one-third of them even grew their assets during this same period!

It’s hard to know how much you can spend because of the uncertainty that retirement brings. The uncertainty risks keep us worried and they include:

  • Longevity Risk
  • Healthcare and LTC risks
  • Inflation
  • Potential Reduction in SS Benefits
  • The Big Mistake – Bear Markets
  • Sequence of Return Risk
  • Early death

Some retirees aim to leave substantial inheritances, which influences their spending habits. However, this can lead to unintended consequences if not aligned with their current enjoyment and family needs.

How best to develop your retirement spending plan

Coupled with the uncertainty, decumulation can be challenging for many because they’ve spent their entire lives in an accumulation mindset.

When it’s time to begin the retirement paycheck, many people rely on the infamous 4% withdrawal rule. But is this sufficient to reach your maximum fulfillment throughout retirement?

Here are 5 steps retirees can take to create more awareness around their spending plan:

  1. Work with an Advisor: Collaborate with a fiduciary financial advisor to create a detailed, adaptable financial plan that balances short-term needs with long-term goals.
  2. Regularly Review Your Plan: Revisit your financial plan periodically to adjust for changes in your life and the market.
    • Revisiting your financial plan frequently ensures that it remains relevant and can help address any changes in your goals or market conditions.
  3. Define Your Goals: Establish clear, measurable goals for your retirement lifestyle, including travel, housing, and health care.
    • For instance, if you plan to travel extensively in the first decade of retirement, outline the destinations, duration of stays, and estimated costs to ensure your savings can support these plans.
  4. Model Scenarios: Explore different financial scenarios to understand the potential impact of various risks and opportunities.
    • Use tools and simulations to model scenarios such as long-term care needs or market downturns to see how they would affect your financial plan.
  5. Communicate with Family: Discuss your plans and legacy goals with family members to ensure alignment and shared understanding.
    • Open conversations about inheritance and gifting can prevent misunderstandings and help your family appreciate your intentions and financial plans.

By taking these steps, retirees can confidently enjoy their savings while maintaining financial security and leaving a meaningful legacy.

Outline of This Episode

  • [0:50] We need to talk about your retirement spending
  • [1:55] What if you had an app that told you how much of your net worth you never got to spend?
  • [10:25] Why it’s important to have a retirement withdrawal strategy
  • [18:55] Our takeaways

Resources & People Mentioned

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