The typical retirement spending narrative involves a retiree who underestimates their money needs and ends up overspending. The more realistic narrative, at least according to a recent study from Ameriprise Financial, is that retirees often spend too little. Unbelievable, but true.
According to the Ameriprise report, 68 percent of retirees have only taken their mandatory, minimum distributions from their 401(k)s and other retirement accounts. They’ve taken nothing beyond that. And while some are shying away from additional withdrawals because they’re scared that they’ll run out of money, the real reason people aren’t spending is because they don’t know how much is an appropriate amount to take. The transition from spending during the working years to spending during the retirement years has confused them. The report found that just 21 percent of respondents felt “confident” in drawing down their assets during retirement. People were concerned about taxes, proper retirement budgeting and more. While it’s typically better to be conservative in your post-work spending, the key to doing it right is much like spending while you’re still working.
As Money reports, one way to alleviate this stress is to adjust your thinking and your budget. Understand which areas of your retirement life you want to spend on more freely (travel, perhaps?) and which areas you want to rein in spending (maybe clothing or transportation?). Don’t think of retirement savings as one big pool that needs to be drained. Instead, consider it as a few small ponds. Your travel pond might get drained a bit faster than your housing pond. If you’re having health issues, your long term healthcare pond should be the largest of them all. You get the idea. Retirement spending doesn’t have to be stressful. You saved all your life for these years. You deserve to enjoy them.