What’s The Right Amount To Spend In Retirement?

The right amount of money to spend in retirement? It’s the amount that lets you enjoy every moment, for as long as needed.

What’s the right amount to spend in retirement? Spend too much, and you run out of money too early. Spend too little, and you miss out on fun and meaningful experiences.

It’s not so easy to come up with the right answer.

That’s why we “spend” so much time working with clients to make it all run smoothly.

For our clients nearing or in retirement, we prepare detailed retirement scenarios showing how their spending – and investments – will impact their net worth.

That makes it easy for them to find the right path, and stay on it.

We’ll help them every step of the way so they don’t miss out on the things that make the journey so worthwhile.

Here’s some good news: It does seem that many people are on the right path to conserving, rather than depleting, their assets in retirement.

New research by T. Rowe Price and the Employee Benefit Research Institute (EBRI) found that even after two decades in retirement, most households had barely dipped into their savings. Their savings had dropped by only 12 to 25%, meaning 3/4 of their assets were still intact and available to spend. Retirees with a pension spent even less, using up only about 4% of assets.

A full 1/3 of households studied had more money after two decades in retirement than they did when they first quit work.

So what does all this mean for you and your retirement?

I’ll share with you what the research says and what I’ve personally observed in three decades of working with real-life clients:

• The great majority of people still need to monitor and control their spending in retirement to make sure they don’t run out of money. We follow a modified 4% rule in our office, modified for life expectancy and recalculated yearly. This helps protect people in the event that investment returns are lower going forward, and provides objective feedback and guidance. Most people don’t know if they are spending “too much” or “too little” and want our help maximizing their resources.

• Most people who were “savers” during their working years will remain “savers” in retirement. They’ll spend very carefully and never run out of money. In fact, as some clients have observed to me, they have more money even after years of making retirement withdrawals than they did when they first started pulling out income. Our guidance can help them spend more (and enjoy more!), based on their “above the curve” results.

• Got a pension? You are one of the lucky ones. Our clients with pensions usually experience minimal spend-down of assets. They can spend more money if they want to, make lifetime gifts, or leave a larger legacy for family or good causes they support.

• Those who spent too much during their working years will tend to continue overindulging once in retirement. They are the ones who really need professional and objective help to stay on course and squeeze the most out of their resources, otherwise they run a very serious risk of running dry. Having a monthly spending budget often helps them to stay on track, as does working with a professional to optimize their investment strategy, minimize support to grown children, and right-size their housing and other expenses.

The Takeaway: While for many people there may indeed be a retirement crisis, new research shows that proper planning really pays off. You can enjoy a confident and comfortable retirement without fear of running out of resources. All it takes to stay on course is a little advance planning, some smart decision-making, and a consistent spending and investment plan.

 

About Mari Adam

Mari Adam, Certified Financial Planner™ and President of Adam Financial Associates Inc, has been helping individuals and families chart their financial futures for over twenty-five years. Have a question about your financial situation? Ask Mari!

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