There are plenty of aspects of retirement to worry about — health issues, feeling bored, and lacking company once you’re no longer going to an office every day. But if there’s one specific worry that can be very hard to shake, it’s the fear of running out of money.
A good 71% of working Americans say they expect to be reluctant to spend their retirement savings once their careers end, according to a recent Allianz survey. And that’s understandable. But it’s also a big problem.
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Not spending your money isn’t the answer
If you spent your entire life budgeting carefully and saving for retirement consistently, it’s easy to see why it’s not so easy to make the jump into spending your nest egg down. But one thing to try to remind yourself is that the whole reason you spent those years saving was to be able to enjoy retirement.
Think about it this way. During your working years, you probably saved for things other than retirement.
You may have saved for a new car, a vacation, or new furniture. Just as you may have made those purchases without guilt at the time, so too should you feel comfortable spending your IRA or 401(k) to support yourself once you’ve not working anymore.
The difference, of course, is that with your IRA or 401(k), you may be talking about millions of dollars. But you don’t have to spend all of it at once (and you definitely shouldn’t).
What you should do is create a budget that outlines your core expenses. Then, think about ways you can make retirement more enjoyable. If that means joining a country club, going out to dinner twice a week, and traveling every other month, you should absolutely do those things if your savings can support them.
To put it another way, your goal in retirement shouldn’t be to keep saving. It should be to finally start spending, albeit with a plan.
How to avoid running out of money too soon
If a fear of depleting your retirement savings in your lifetime is causing you to underspend, it’s important to address it rather than continue to deny yourself access to the money you worked hard to accumulate.
First, come up with a safe withdrawal rate based on your retirement timeline and investment mix. If you retired in your 60s and have a fairly even mix of stocks and bonds, you may feel comfortable using the popular 4% rule. If you’re invested a bit more conservatively or retired on the earlier side, a 3.5% withdrawal rate may be more appropriate.
