In “Managing your retirement nest egg and making it last as long as you do,” The Washington Post columnist Rodney Brooks clues readers to something they may not have considered as they spent years saving for retirement:
“After saving their entire lives, many people forget to figure out how to turn that retirement nest egg into income that could last the rest of their lives.”
In fact, as the article mentions, many people go on a spending spree when they retire because after a lifetime of saving, they have been longing to buy things and take vacations. But spending too much in your early retirement years can lead to trouble later.
Many retirees don’t realize that they need to develop a new mindset and change from saving to managing (and hopefully increasing) the money they have saved. When many people had pensions, they were freed from having to manage that money since pensions provided monthly income. With 401(k) plans and IRAs, the money management piece is up to you. And if you don’t already know, you should not rely solely on Social Security because it is not likely to provide what you will need in retirement.
If you haven’t retired yet, you need to plan for how you will spend your retirement income while you are still working to save for that time. Brooks points out that it has been traditional for financial planners to suggest the 4% retirement rule (with 4% being the percentage of your retirement nest egg that you can spend each year) but adds that some financial planners don’t think that one should abide by a rule. Instead, you should work with a financial advisor to figure out what will work for your particular situation. Keep in mind that some of your retirement account withdrawals may be taxed.
What should you do? Annuities are a great way to guarantee a steady stream of income during retirement, however, the article notes that it should be just one piece of your retirement portfolio.
If you aren’t sure how you will shift from saving to managing your retirement nest egg, contact a Fee-Only financial planner.