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How to Spend in Retirement Without Worrying

Picture of Randall E. White

Randall E. White


If you want to achieve financial independence and live the life of your dreams, you’ll need to adopt wealth-building habits that help you accomplish your goals. Like any habits, wealth-building habits must be regularly practiced until they become second nature in order to be effective. To do that, you must exercise patience and commitment.

Most retirement advice is focused on how to save smartly so that you’re financially secure when you leave the workforce. This is understandable considering you most likely want to live comfortably in retirement and doing so usually requires a sizable nest egg. However, as critical as those pre-retirement money moves are, it’s equally as important to think about your wealth management strategy once you retire. You want to be able to enjoy the fruits of your hard work without worries of running out of money – which is a common cause for anxiety among retirees.

This conundrum ends up creating two unfortunate camps that retirees can find themselves stuck in if they aren’t careful. One camp is so afraid of running out of money that they barely spend anything and deny themselves a retirement that they deserve. Conversely, there is another camp of retirees who spend more than they should and put their financial security at serious risk.

Your goal should be to find an even balance between these two extremes and the strategies below will help you to pursue your retirement dreams without putting your savings in jeopardy.

Make the 4% Rule Work for You

A common refrain in retirement spending is to follow the Four Percent Rule. Put simply, the rule advises retirees to withdraw 4% of the total value of their investment portfolio during their first year of retirement. Then for every year following, retirees should increase the dollar amount of their withdrawal by the previous year’s inflation rate. The idea behind the rule is to ensure that you’re not overspending in retirement and putting yourself at risk of outliving your savings.

While this rule has withstood the test of time, that doesn’t mean that it’s the right rule for you. Your annual withdrawal rate should be unique to your financial situation. It also fails to take into account the ways your spending habits and expenses may change as you grow through retirement. For example, you may spend more money on traveling or other experiences early in your retirement while you’re still in good health and then those expenses will dissipate as you get older.

Ultimately, you need to determine for yourself what the right amount is for you to be withdrawing depending on how large your nest egg is, how you plan to spend your retirement, and how long you expect your retirement will last. It may help to create a retirement timeline of your expected income and expenses to determine the best withdrawal strategy for you.

Be Intentional with Your Social Security Strategy

If you’re like most retirees, your Social Security benefits will make up a significant portion of your income in retirement. Given how crucial Social Security is for many retirees’ financial security, it’s important that you’re intentional and smart about when you begin claiming your Social Security benefits. While it may be tempting to begin collecting your benefits as soon as you’re eligible, there are some major benefits to delaying filing for Social Security if you’re able to.

Not only does Social Security get adjusted for the cost of living each year, but you also get an 8% credit each year you delay claiming your benefits. Over the years, that 8% can add up to quite a meaningful increase in your benefits.

SEE ALSO: Three Reasons to Delay Taking Your Social Security Benefits

Include Tax Planning in Your Retirement Plans

Too often retirees find themselves blindsided by a large tax bill in retirement. If you have most of your savings in tax-deferred accounts such as an IRA or a 401(k), then you should expect to pay a significant amount of money in taxes as you start withdrawing from those accounts. One way to combat this is to convert some of your funds from a tax-deferred account to a Roth IRA. While you will have to pay taxes on any money you roll over, once the money is in a Roth IRA, you’ll be able to grow and withdraw your money tax-free.

There are plenty of moves you can make to help reduce your tax bill in retirement.  The key is to find the right options for your unique financial situation and your long-term financial goals. It may be smart to talk to a professional who understands tax law and how it interacts with various accounts so that they can help you see the big picture as you create your tax plan for retirement.

Make Your Own Annuity

Throughout the financial planning industry, there are plenty of arguments over whether or not investing in an annuity is a smart choice. Without getting into any details here today, we’ll discuss an alternative option instead. You could create your own “annuity” through an IRA. If you’re going to be living off of your assets in retirement, take some time to determine exactly how much money you’ll need each month and withdraw that amount on a monthly basis. Rather than taking out larger dollar amounts less frequently, smaller withdraws allow you to protect your bottom line while also providing you the opportunity to strategically plan how much you’re withdrawing overall.

SEE ALSO: Four Steps to Feel More Confident About Your Retirement Plan

When you’re taking out large sums of money sporadically, it can be incredibly difficult to keep track of where money is going, and the desire to overspend is a hard temptation to fight consistently throughout your entire retirement. By giving yourself a monthly income, you’re giving yourself more control over your budget as well as putting guardrails in place on how much you should be spending each month.

Consider a Part-Time Job or Financially Beneficial Hobby

A great way to combat the fear of running out of money is to generate extra income in retirement that wasn’t originally planned for. Look for companies that are doing work you’re passionate about that may be looking for some extra help. Or, perhaps you could take up a hobby such as furniture restoration or cross-stitching where you can sell your products at a local farmers market or online.

Having a part-time job in retirement not only helps your financial security, but it can combat the boredom many retirees struggle with once they finally retire. Additionally, it’s a great way to stay in touch with the outside world and fill your days with purpose.

Final Thoughts on How to Spend in Retirement

There’s so much hard work, planning, and yes, stress, that goes into a successful retirement, and this planning doesn’t stop just because you’ve finally retired. After a lifetime of working and saving, you deserve to enjoy the fruits of your labor without constantly having to worry about whether or not your money will run out. The best way to irradicate these fears is to have a solid plan in place for your spending, coupled with a smart investment strategy to help sustain you throughout the entirety of your retirement.

At TriCapital Wealth Management, we are committed to providing unique and dynamic financial planning that meets each of our clients where they are. If you’d like to speak with one of our professionals about your spending strategy or other retirement topics, please contact us today.  

Securities offered through Triad Advisors, LLC, member FINRA/SPIC. Advisory services offered through TriCapital Wealth Management, Inc. TriCapital Wealth Management, Inc. is not affiliated with Triad Advisors, LLC.

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