Many retirees come to my office with a fair amount of savings (from half-million dollars up to several million dollars) and upon reviewing their spending plan, I find that they can be quite miserly with their retirement spending, despite having significant wealth.
Relatively speaking, most of America is ill-prepared for retirement. According to Transamerica Center for Retirement Studies, in 2017 Baby Boomers had $157,000 estimated median retirement savings and only 15% had a written retirement income pan.
Retirees are afraid to spend. They’re afraid of running out of money, when in fact with proper planning, they could be enjoying a more enriched life that they justly deserve from working so hard during their employment years.
It’s natural to be afraid to spend money for fear that it will run out. Beating this problem requires sound retirement income planning.
Running out of money is the main concern. However, stress relief can be achieved with relative ease, if they only knew the secret. The secret is developing clarity about the income their funds can produce, then with that new-found clarity, they can then allocate their resources to the times in their life when those funds will be needed.
It’s a matter of planning the life you want and designing the financial structure of your assets to meet the plan.
Wouldn’t it be great to have permission to spend the money you worked so hard to earn, so that you could fully enjoy retirement stress free?
The key is getting clear about the purpose of each dollar in your accounts, and aligning each dollar to it’s timeframe for spending, emergencies or passing on to another generation. For example, some money should be set aside for immediate needs — like in the next three to five years — in what I call an “income spending account”. That money should be held in a safe account.
Other parts of your account balance will be dedicated to 4 or 5 “future spending accounts” invested to be spent-down during later time segments of your life. Each of those segments would have an initial account balance and a target balance that need to be attained within a certain timeframe. They can be invested properly to meet those targets by taking on appropriate level of risk for the time frames that are planned.
You may also want to design a legacy account to be there for your heirs or charities, or for yourself in case of unexpected emergencies or life changes. Life has a way of throwing curveballs, and we can plan for that.
When you see your account balances every day or in your monthly statements, you can rest easy knowing that the money that you need in the next few years is fixed, growing slightly, and fully available to you for spend according to your plan. You are fully authorized and permitted to spend money for the next few years according to your plan. Spend with confidence knowing that you have a plan-design and monitoring system to ensure you achieve your retirement goals.
If you’d like more detailed information about this retirement income strategy, please click here for my white paper on the topic, entitled “Managing Income in the Next Stage.”
Meanwhile, here are a couple of reference articles to further explore this concept, and of course, I’m here if you need any professional help:
The Myth of Outliving Your Retirement Savings by Gail MarkJarvis at Reuters
Giving Retirees The Permission to Spend by Tom O’Connor at IncomeConductor