How to Calm Your Retirement Nerves When It's Time to Shift from Savings Mode to Spending Mode

Life, at times, presents everyone with changes that can be disorienting.

But perhaps few changes are as sudden and jolting as when you retire, and after decades of saving money in a retirement account, it's time to begin spending those dollars you dedicated so much time and effort to accumulating.

In my experience as a financial professional, this mindset shift from savings mode to spending mode makes some people downright nervous.

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Kiplinger's Adviser Intel, formerly known as Building Wealth, is a curated network of trusted financial professionals who share expert insights on wealth building and preservation. Contributors, including fiduciary financial planners, wealth managers, CEOs and attorneys, provide actionable advice about retirement planning, estate planning, tax strategies and more. Experts are invited to contribute and do not pay to be included, so you can trust their advice is honest and valuable.

For one, during their working years, new retirees could count on a paycheck arriving in their bank accounts every couple of weeks. When their working days end, so does that paycheck.

It was also nice all those years to see the balance grow each month on their IRAs, 401(k)s or other retirement accounts. The feeling of accomplishment was gratifying. It's less thrilling to make withdrawals and watch the balance decrease.

They knew this day was coming: The entire point of saving the money was so that, when retirement arrived, they could use that money to pay bills, travel and enjoy their post-work years.

Having a retirement plan in place can help with the adjustment to this new life chapter so that any withdrawals from your retirement accounts are handled strategically, not haphazardly.

Understanding your income streams

Part of a strategic plan involves understanding the income streams you'll have in retirement and the role each will play in replacing your paycheck and making sure you have the money you need.

Many retirees worry that they will outlive their savings. A recent Allianz Life study found that 64% of Americans are more worried about running out of money than they are of dying.

But a carefully crafted income plan can help ease concerns that your savings will drop to zero.

What are some options to create income streams?

Social Security plays a key role, although it's going to need help. Typically, Social Security will replace just 40% of the average person's preretirement income, and studies show most people need about 70% to 80% of their preretirement income to maintain their standards of living. (Those percentages are averages, so your specific situation might be different.)

Some people have pensions, though those are rare today. If you're due a pension, be sure you understand all the options you have to claim it.

For example, you might need to choose between taking a lump sum or receiving monthly payments for the rest of your life.

If you're married, you might be able to take a reduced monthly payment in exchange for your spouse continuing to receive the pension for the rest of his or her life.

A financial professional can help you review the options and evaluate what fits your situation.

You might have other income sources to tap. Perhaps you have invested in a dividend-paying stock, or maybe you own rental property. Figure all sources into the equation as you work to replace your preretirement income.

Finally, you might have retirement savings accounts. Once you know how much money your other income streams should generate, you can determine how much of a gap you'll need to fill with withdrawals from an IRA, 401(k) or other account.

Traditionally, people often followed the 4% rule, withdrawing 4% from the account the first year of retirement, then withdrawing 4% plus an extra amount in subsequent years to account for inflation.

You might or might not need to withdraw that specific amount, so a financial professional can advise you on what fits your situation and income needs.

It's what you spend, not what you saved

The income stream is just half of the equation, though.

Clients often come to us and one of their first questions is: Have I saved enough for retirement? But the pertinent question isn't about how much you saved. Instead, it's this: How much do you expect to spend in retirement?

Some spending will be the same as what you had in your preretirement years. You'll still need to pay bills, buy food and pay taxes.

You could be surprised by how much you spend. People often expect their expenses to drop in retirement, and that's possible. But with retirement, every day is Saturday, and Saturday tends to be a day when many people spend more.

They're eating out, shopping, participating in hobbies, going to movies or sporting events and otherwise loosening the purse strings.

There's nothing wrong with that. At our firm, we like to see our clients have both a paycheck and a "playcheck" in retirement. They should be able to travel, visit grandchildren and enjoy these years they planned for so long.

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To do that, though, requires a realistic look at anticipated expenses — and those won't necessarily be constant throughout the retirement years.

Instead, we often see a spending pattern that resembles a "smiley face." In the early years of retirement (what some people call the "go-go" years), spending tends to be high. Retirees are more active. They travel and are on the go.

Then, as time passes, the "slow-go" years arrive and spending tapers off as aging retirees reduce their activities.

Finally, the "no-go" years are here, and spending rises again, but this time it's for medical care or long-term care needs.

As you plan, you'll need to anticipate the needs for each of those spending stages, making sure you have the money to enjoy the early retirement years, while also planning for any health care costs that might emerge later.

Ideally, your transition from savings mode to spending mode should be a smooth one.

Put a plan in place so that, when retirement arrives, instead of worrying about running out of money, you can make the most of every moment.

Ronnie Blair contributed to this article.

The appearances in Kiplinger were obtained through a paid PR program. The columnist received assistance from a public relations firm in preparing this piece for submission to Kiplinger.com. Kiplinger was not compensated in any way.

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