Why Most People Get Spending Money Wrong in Retirement
Updated on Jun 27 2018
While retirement is enticing, developing a plan for saving, and spending, are crucial. Learn why 68 percent of retirees have not taken money out of their savings beyond what they have to withdraw as part of their required minimum distributions from their 401k and retirement accounts.
There is an art to spending money in retirement that most people haven’t learned. In fact, a startling percentage of Americans are uncertain of how to drawdown assets and spend money in retirement. According to Ameriprise Financial, 71 percent of retirees surveyed said they think their money will last their lifetime, but only 21 percent feel “confident” in how to spend that money.
Retirement planning is one thing; spending money in retirement is another. Repondents cited concerns ranging from determining the appropriate portfolio risk, tax ramifications, and the right way to establish a retirement income plan. After you’ve worked hard your entire life, you enjoy to spend some money and enjoy your retirement. Read below for tips on best practices for strategically spending money in retirement.
How to Spend Strategically in Retirement
After you’ve worked hard to save and prepare for retirement, planning the order of how you liquidate and spend your investments will help you derive the most spending power from your accumulated wealth.
Retirees usually are advised to spend-down their taxable assets first, then their 401(k) and conventional IRA assets, and finally non-taxable Roth IRA accounts, though strategies may differ by individual. Retirees who are financially stable are advised to defer taking Social Security for as long as possible, to get a bigger benefit, though doing so is optional.
Here are a few things to think about:
If you’ve been moving to a more conservative mix of investments in the past decade, you may not need to make any changes. If you have riskier investments, you might want to consider more conservative alternatives.
If you left retirement savings at an old job, think about rolling that 401(k) over into another account, taking careful consideration of taxable income during rollover.
When you turn 70½, the IRS will require you to begin taking withdrawals from certain types of retirement accounts. In most cases, it doesn’t matter when you actually retire. Calculating these required minimum distributions (RMDs) can be tricky as they’re determined by average life expectancy according to the IRS.
A financial advisor or wealth manager can help you determine the best order in which to spend your assets in your investment portfolio. Every person’s situation is unique, so it’s important to be strategic with your finances if you’re still trying to grow your wealth or maintain a legacy well in to your retirement.
About the Ameriprise Financial Study: The study surveyed 1,000 retirees with at least $100,000 in investable assets when they retired, with the median being $839,000. While the group ranged in age from 40 to 79, more than half of respondents were age 70 and older, and 38 percent were ages 60 to 69.)