If it all of a sudden started raining coins, is that climate change? 🌧️🪙 And is that why they always tell us to save for a rainy day? 🙃
While you’re noodling over an answer to those questions, did you know many retirees underspend in their golden years? 💸 Let’s unpack some of the reasons why and what to do instead.
Here’s Five Fast Facts on retirement underspending:
- 👛 Penny Pinching - You might think of retirement planning as a "don't run out of money" problem, but the bigger challenge may be giving yourself permission to actually spend it. Research shows about a third of retirees still have 100% or more of their original savings remaining by their mid-80s.
- 🤔 Guessing Game - Why do people spend too little? Retirees have to guess how long they'll live, how markets will perform, and how much they'll need decades from now. With pensions largely replaced by 401(k)s, many people would rather spend too little than risk spending too much.
- 💰 Save-To-Spend Switch Up - Behavioral reasons also come into play. After decades of saving, investing, and watching their retirement account balances grow, many people find it tough to transition to spending from those accounts, even when their finances are secure.
- 👍 Rule of Thumb - If retirement spending feels overwhelming, that's partly because there's no one-size-fits-all answer. Experts use the 4% rule to figure out how much someone can safely withdraw each year. That being said, individual circumstances, market conditions, and required minimum distributions can all affect the final number.
- 🛣️ Financial Flexing - Other than the 4% rule, experts recommend a flexible approach that adjusts spending based on market performance and personal needs. Retirement spending often follows a U-shape: higher in the active early years, lower in the middle, and higher again later when health-related expenses become more common.
🔥Bottom line: The thing about money is you can’t take it with you when you go! Smart spending in retirement allows you to make the most of it while you’re here. Got medical debt? Something called “charity care” could help you out of it. Head to this article to read more about it.
Are you retiring this year?
Let us know by connecting with us on Facebook and Instagram! Also, remember to share this newsletter with your friends & coworkers!
Btw, If you’ve read this far and haven’t yet signed up for the weekly Paycheckology newsletter, CLICK HERE!
