Creating Your Retirement Spending Plan

Saving for retirement is only half the battle. Eventually, you’ll have to spend what you save. The thought is terrifying to retirees concerned about running out of money. That doesn’t mean you can stick your head in the sand. A well-crafted retirement spending plan can preserve your assets no matter how long you live. Here’s how to do it.

Get Help

Planning for 10, 20, or 30 years of spending is a complex undertaking that must take into account price changes, market fluctuations, and the likelihood of whether you’ll need costly healthcare. So your retirement spending plan should begin with a discussion with a financial planner or advisor.

If you have unique or potentially costly needs, you may need additional expertise. For example, people raising children with disabilities or people diagnosed with chronic illnesses should work with doctors to gain an accurate understanding of what medical care will likely be necessary down the road. This then empowers you to work with a financial planner to craft a plan that addresses those expenses. 

Get Clear About Your Plan

Crafting a retirement spending plan is something that can’t be boiled down into simple steps. Much depends on how much money you have, your anticipated expenses, whether you’re willing to reduce those expenses, and how much income, if any, you anticipate in retirement. The plan requires some research. Be prepared to discuss with your advisor:

  • The baseline expenses you anticipate in retirement, including your mortgage, car payments, groceries, recurring health costs, and other necessities.
  • Goals for retirement. These expenditures may not be necessary, but they are vital to a fulfilling retirement. Talk openly and honestly about how you hope to spend your retirement, even if you’re not sure it’s possible.
  • Expectations for your retirement portfolio. Get clear estimates about how much your money will continue to grow in a weak, average, and strong market.
  • Inflation issues. Your money will be worth less in the future than it is now, so be sure your plan accounts for this.
  • What responsible retirement spending will look like: Ideally, you should spend less than your portfolio yields in interest. For many retirees, this is impossible. So discuss with your planner how various spending plans will deplete your savings, and at what rate.
  • Your plans for a legacy: Some retirees want to enjoy their hard-earned and hard-saved money. Others hope to leave behind money for their family or a charitable cause. Get clear about how your spending might affect your ability to leave behind a bequest. 

Develop an Emergency Back-Up

What’s the plan if you need extensive medical care? If the market crashes? If your home needs costly repairs? Your spending plan should leave a significant cushion for unanticipated expenses and losses. If you’re lucky enough to live a long life, you will almost certainly need long-term care. Ninety-seven percent of people eventually need some form of long-term care. So plan accordingly.

One thing to keep in mind is the role of your home. For some seniors, the home is little more than a wasteful expense. But before you give it up, consider that your home is also a resource—a source of equity, and a potential source of emergency cash. If you’re over 62, you may also be able to access extra money via a reverse mortgage. This modified take on a traditional mortgage offers fast cash that you don’t have to repay as long as you comply with the terms of the loan and remain in your home.

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