Don't Let the Fear of Spending Spoil Your Retirement

Tapping into your nest egg can be a scary proposition, but at some point you're going to have to take the plunge. What are you waiting for? If you've saved and you have a plan, then you've earned a little fun.

(Image credit: aydinmutlu)

If you have done any research on retirement, you have likely read that the No. 1 concern for retirees is that they will outlive their money.

This is a valid concern due to several factors. Americans are living longer. Health care costs are rising. Pensions (defined-benefit plans) are a thing of the past. Today, many retirees are nearly 100% dependent on Social Security and whatever money they have been able to stash away in retirement plans, such as IRAs, 401(k)s, 403(b)s, etc.

It is easy to have hesitations about the future, and it is smart to be careful about your spending in retirement. However, my biggest concern is that some retirees are so worried about running out of money that they resist taking their dream vacations or traveling more to see their grandchildren.

Subscribe to Kiplinger’s Personal Finance

Be a smarter, better informed investor.

Save up to 74%

Sign up for Kiplinger’s Free E-Newsletters

Profit and prosper with the best of expert advice on investing, taxes, retirement, personal finance and more - straight to your e-mail.

Profit and prosper with the best of expert advice - straight to your e-mail.

Sign up

No one can change the inevitable. Your story will eventually end at some point, but via proper planning you can fill the pages of your story with whatever you choose!

A great example of this comes from one of the families I have had the pleasure to work with. She and her husband moved to Denver about 15 years ago from San Diego. The decision to move was extremely difficult because it meant leaving family behind to follow her husband’s career. About two years ago her husband, unfortunately, passed away unexpectedly. During our initial meeting while I was getting to know her, I kept thinking to myself, if her family is in San Diego, why is she not there? When I finally asked the question — her response is something I will never forget — “I would love to, but I can’t afford to move back.”

The problem was not that she didn’t have enough money saved. Once her husband (who had managed their finances) passed, she was unsure about her financial well-being.

This is a situation I see all too often. Most retirees do not have a comprehensive financial plan to help guide them through retirement. Imagine taking a road trip without a map to get to your destination. That is essentially what individuals without a retirement plan are doing. If you do have a plan, are you positive that your spouse understands turn by turn how to get from point A to point B if you are not here?

Making the transition from accumulating assets to living off those assets can be difficult. Many of the retirees I counsel have the mindset that they would rather save what they can today, because they may need it in the future.

Ameriprise Financial recently published an article focused on this growing concern of outliving your assets. During this study, they found out that nearly 7 in 10 (68%) of American retirees still have not touched their retirement savings other than what the government requires at age 70½ via required minimum distributions (RMDs). When asked why individuals were not spending their retirement savings, most (71%) said it was not because they were necessarily concerned about not having enough saved, it was because they didn’t have a plan to withdraw from their accounts that they felt confident in.

Here are three steps you can take to help feel more confident in your retirement plan:

1. Create (or update) your budget.

Similar to when you are working, you will have fixed expenses that are just part of life. Mortgage, food, gas, health insurance, utilities, etc. These costs may go up over time due to inflation, but they are not going away. Because we know you will have to pay these expenses the rest of your life, you should explore investment options that are sustainable and have little to no risk. We often refer to this section of your portfolio as the “foundation” for which everything else is built upon.

2. Create a retirement ‘bucket list.’

You didn’t work 30+ years to just sit on the couch once you get to retirement! What would you like to do? What would you like to see? Where would you like to go? Make a list of things you have always wanted to accomplish. This list should even include things such as updating your house or buying a new car. Whatever amount of money you expect to spend on your bucket list items during the first 10 years of retirement should be invested in a manner that maintains some liquidity (access to the funds) but more importantly protection from market declines. We often refer to this section as the “walls” to your retirement plan.

3. Take an appropriate amount of risk.

We have all lived through 2001 and 2008. We all know how quickly the stock market can reverse course. I believe this is one of the primary reasons why many individuals fail to complete their retirement bucket list. If you are uncertain about the future of your assets it is difficult to spend the money needed to take your dream vacation. Also, if the market is going through a correction, do you think the electric company is OK with you not paying your bill that month? Withdrawing money from your accounts while the market is down only makes it harder to recover. For us, it is important to focus on funding your “foundation” first. After that, we can help determine how many of your bucket list items you can afford to accomplish via the “walls.” Only after both of these pieces are in place do we discuss the final portion of your retirement plan, which we call the “roof.” This is the risk-based section of your portfolio, which is designed for long-term growth.

One of my favorite sayings is, “Your next 10 years should be your best 10 years.” Don’t miss out on the fun you could be having in retirement simply because you do not have a financial plan. Talk to a qualified retirement planning professional who can help you accomplish everything you dreamed retirement could be.

Investment advisory services offered only by duly registered individuals through AE Wealth Management, LLC (AEWM). AEWM and Financial Integrity are not affiliated companies. Investing involves risk, including the potential loss of principal. Any references to protection benefits, safety, security and lifetime income generally refer to fixed insurance products, never securities or investment products. Insurance and annuity product guarantees are backed by the financial strength and claims-paying ability of the issuing insurance company. 638277


This article was written by and presents the views of our contributing adviser, not the Kiplinger editorial staff. You can check adviser records with the SEC or with FINRA.

Cody Meeks, Vice President
Investment Adviser Representative, Financial Integrity

Cody Meeks is vice president at Financial Integrity in Colorado, where he is licensed to sell life and health insurance and has his Series 65 securities registration.