You were probably a teenager when you opened your first paycheck and officially started the cycle of earning and spending your own money. Since then, the following process has never stopped:
Work. Earn money. Spend some. Save some (hopefully)… Repeat.
And now, just because you are ready to retire, you are forced to adjust to an entirely different system. Suddenly, it’s supposed to seem totally normal to spend… Then, spend some more… And then, spend even more – drawing down the retirement nest egg that took you a whole lifetime to build?
That can be terrifying! And, if you are feeling scared, you’re definitely not alone.
How to Overcome the Terror of Spending Your Retirement Savings
If you’re uneasy and not sure you can handle watching that nest egg balance fall month after month. Don’t worry. Here are a few tips to overcome your fear of retirement spending.
After reviewing and taking action on the steps below, you’ll no longer need that brown paper bag (for hyperventilation).
In fact, you might even take your spouse on that tropical cruise you have always dreamed of. (Wait, that was the dream before the pandemic. Maybe now you’ll splurge on the motor home and a road trip!)
1) Get Really Comfortable with Your Numbers — Use a Detailed Quality Retirement Spending Calculator
It’s pretty much impossible to look at your nest egg and automatically know that it’ll last you through your retirement. There are just too many variables at play.
It’s easy for someone else to tell you you have enough for retirement. However, it is much more powerful for you to see for yourself. It can be easy to calculate EXACTLY how a comprehensive set of your own values — your assets, spending, rates of return, inflation, income and so much more — will result in a secure future. With this detailed knowledge and sophisticated calculations, you will be able to gain a sense of financial well being and confidence and overcome retirement fears.
That’s why NewRetirement offers the most comprehensive retirement planning system. Embedded in the functionality is the best retirement spending calculator with detailed budgeting and withdrawal options.
Start by inputting some basic information and get an estimate for how long your money will last. Then, add more detail and start running various scenarios and discover your own safe spending levels. The withdrawals feature will help you determine how to best manage withdrawals from savings. And, easily see your projected annual income and expenses for the rest of your life.
Keep adding details, reconciling your information and stay on track to a secure future.
2) Understand the Real Risks to Your Future Security (and Plan for Them)
Research from Transamerica found that fear of running out of money, concerns about the viability of Social Security and not being able to afford healthcare are the three biggest retirement fears.
Other factors that might put your financial security in jeopardy include inflation, unstable economic markets, unforseen emergencies, forced retirement, falling home values, an environmental disaster, a catastrophic health event or perhaps even an unpredictable pandemic.
There is a lot about the future that we can’t predict, but that doesn’t mean that you can’t plan!
3) Get Reassured by a Financial Adviser
Have you ever sold a house before? Did you try to sell it on your own, or did you seek out an experienced professional that sells dozens of homes each year? Most of you probably went with the experienced realtor.
Why? It’s simple. It’s because you were attempting to make a transaction with the largest asset you had at the time… and it wasn’t worth the risk of getting it wrong.
Now that you’re nearing retirement, you want reassurances.
The NewRetirement Planner is unbiased and reliable and there is even a virtual retirement coach included. However, many people want a second opinion from a live human being about retirement spending and other financial factors. Talking with a financial advisor can definitely ease your concerns about whether or not your nest egg will last as you as you do — however long that turns out to be.
Additionally, a financial advisor can help you optimize your wealth by helping you with:
- Retirement fund management
- Mortgage advice
- Insurance recommendations
- Tax help
- Investment risk
- Estate planning
Related: Explore questions to ask a financial advisor. Or, get matched to a fee only NewRetirement Financial Advisor who acts as a fiduciary at a low cost due to efficient use of technology. The advisor works with you via phone and with the NewRetirement Planner and the process will help you overcome any retirement fears.
4) Adopt the “Right” Kind of Spending
Money is everything – at least, that’s what you thought when you were young. Heck, that’s why you scrimped and saved! You figured that money would give you security, create options, and maybe even give you some happiness.
Well…while that’s not too far off, it’s not entirely true.
Money, all on its own, doesn’t really do that much for us. It’s what we do with that money that might lead us toward happiness. Let’s say you had $100,000 in excess cash that you could do whatever you wanted with. No strings attached. And, if you lost it all it wouldn’t affect your life whatsoever.
So, you decide to buy a… Ferrari 360 (some say the most beautiful car on the planet). The thrill is immediate: the vibration of the engine, the way it just grabs the road around those tight corners, the smell of European leather…mmmm. All sensational.
But, you know what? It gets old after a while. No matter how exotic that car is, the story is still the same. It’s awesome when you drive it — experience it — but owning it can becomes a burden.
Shift from Ownership of Things to Keeper of Memories
If you can shift your spending from ownership to experiences, spending your nest egg becomes fun and meaningful instead of a retirement fear. It’s not about fast cars, it’s not even about big houses – it’s about experiences and making memories.
It’s about having the time to do the things you’ve always wanted to do, not buying all the stuff you always thought you’ve wanted.
Countless studies have shown that people who are far more satisfied — in the present AND in the long run –when they purchase experiences than when they buy material objects.
When you spend your money on memories, you’ll stop thinking about your dwindling retirement and you’ll actually start living your life the way it was meant to be lived.
Dr. Thomas Gilovich, a psychology professor at Cornell University has studied the question of money and happiness for over two decades. He explains, “We buy things to make us happy, and we succeed. But only for a while.” He continues, “Our experiences are a bigger part of ourselves than our material goods. You can really like your material stuff. You can even think that part of your identity is connected to those things, but nonetheless they remain separate from you. In contrast, your experiences really are part of you. We are the sum total of our experiences.”
5) Guarantee Your Income with a Lifetime Annuity
Alright, that was poetic and all…but let’s come back down to reality. It’s still freaky to spend money that you’re not actively earning. If you’re nodding your head with me (and annoyed by my touchy-feely paragraphs above), then this step is for you.
A lifetime annuity is an insurance product that allows you to pay a lump sum and in turn, receive a guaranteed monthly paycheck — for life (no matter how long that turns out to be).
In other words, if you have $250,000 and you’d like to receive a set payment each month instead of stressing about what investments to make that won’t go up in smoke and will return your desired income, then you could buy an immediate annuity and receive say, $1,000 a month. (The actual amount differs for everyone…so remember, this is just an example. Use a lifetime annuity calculator to determine your income.)
The consistent pay might be just enough to ease your tensions about your retirement. It was difficult to know how long your nest egg would last when viewed as a whole, but now that you have a set $1,000 coming in with your social security money….yeah, you can see this working.
The downside of lifetime annuities is that they are not designed to offer you stellar returns on your money. They are supposed to alleviate retirement fears and provide peace of mind.
6) Don’t Let The Money Shrink
This option is easier said than done, but it is absolutely possible. Many retirees manage to increase their wealth after retirement instead of spending it down. Review advice from retiree who had more savings at age 80 than when he first retired.
If you already have it in your mind that you’d like to leave a hefty inheritance to your children and grandchildren, then this option might just suit you perfectly.
On average, the stock market has earned approximately 7% per year since the early 1900’s. You’ve probably experienced this growth and can attest to the growth figure. But there have been many ups and downs over the last 100 years and now that you’re nearing retirement you need more certainty about returns than before. I imagine you’ll be on the search for some safer investments that yield between 3-5%.
In comes the 4% rule...
According to many investment professionals, withdrawing from your nest egg at a rate of 4% is one way to hopefully ensure that you will still have money at your death…but it’s not a hard and fast rule. Some argue that 4% is too much, some say it’s too little.
And you know what? They’re both right because everyone has different circumstances and therefore, a different scenario and no one can predict what the stock market will do.
If you’re fearful that you’re going to run out of money in retirement, then you could simply withdraw a percentage that is less than or equal to your rate of return on the money.
In other words, plan to withdraw your money at 2%-3%. It likely won’t shrink and you’ll always have comfort in the fact that you’re being ultra-conservative with your precious nest egg.
7) Trading Money for an Even More Valuable Asset
What’s more important than money? Family, friends, experiences…yes, all of these things. But what’s even more important that?
As the story often goes, a man lays on his deathbed with only a few more minutes to live. He knows it, his family knows it, but there’s nothing that anyone can do about it. What is the one wish of that man?
He thinks of opportunities missed, memories forgone, and precious time that was simply wasted. If only he could have it all back… but he can’t.
When it comes to retirement, don’t get scared away from it. Embrace it. You’ve worked all your life to get to where you are today, and now you have the chance to buy the world’s more valuable asset – time.
It’s the one purchase you’ll absolutely never regret.
8) Have a Purpose!
For most of your life, earning money has been a key purpose. In retirement you need to make sure you have a new reason to get out of bed everyday. And, by adopting or acknowledging a new type of purpose for retirement, it will be easier to spend your money.
You want a reason TO DO something, not a reason NOT TO DO something.
9) Go Slow, Ease Your Way into Retirement Spending
Time may be what you need to feel comfortable spending in retirement. Research from AgeWave and Merril Lynch found that it can take retirees about 18 months on average to get over feeling uncomfortable about spending money.
Explore ways to transition into retirement instead of going cold turkey.
It’s Time to Retire Confidently
So what do you think? Do the retirement spending calculations work in your favor? Do all signs point toward making the leap?
If so, you’ll be the envy of many and you’ll join the happy company of countless others that have already taken the leap.
I sure hope you’ve put that paper bag back in the cupboard at this point. You’ve been researching and planning for your retirement for a long time. You know you’ve got enough money and you’re adult enough to spend it wisely, so why not hang up your work boots and start enjoying life?
Walk through the steps above. Retire with confidence. Never look back.
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