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How Do I Know What I Can Spend In Retirement? – 4 Questions

How do I know what I can spend in retirement?” This is the most frequently asked question for people who are about to retire. The following 4 questions must be considered when coming up with the answer.

1. What will I spend in retirement?

Most people don’t really know the amount they spend currently, and in order to understand how much you can spend; you first have to know how much you are spending now.

Many people believe that they will only use a percentage of what they used to spend when we are in retirement, but it is actually the opposite. This is especially true during the first few years of retirement. People will spend more money than when they were working because they have more time. They travel, eat out, spend time with friends, etc. Usually, during the first 10 years, the spending is much higher then it starts to level off.

To help you determine how much you’re going to spend in retirement, you need to know what you’re going to spend and what you’re going to do. Then you’re going to have to know where you’re going to live. Will you pay off the mortgage, or downsize and get a new place?

Once you have all of your expenses together, then you need to account for inflation. There will be a major change in how you spend money. You’ll also need to think about children, future medical costs, improvement costs, etc.

It’s hard to account for every situation, but when you’re putting together a plan, you need to put a certain amount of money/assets aside for emergencies. By setting aside assets for unexpected events, you’re essentially preparing for them.

2. Where is this money going to come from?

There are a few different sources of income in retirement. We have fixed income streams, such as Social Security. Of course, there is the question of when is the proper time to take it which needs to be considered. Waiting until the age of 70 gives you an 8 percent increase in your benefit. Another fixed income stream is pension though pensions are starting to become rare. Many companies have gotten away from them.

Then we have to look at part-time income. A lot of people want to work past retirement to either ease into retirement, or because they enjoyed their work. So usually they still work but not as much as they used to. Finally, we have investments. How much of your principle can be spent? We need to look at accounts which need to have taxes paid such as the 401k and IRA. We need to account tax because $1 million will not necessarily mean $1 million once the taxes have been factored in.

Decisions on how to take your money will affect how much money you can save and how much income you will get during retirement. Other people will also have inheritance and it could be significant, or not, but usually it’s not included in the plan because until you have the money in your hands we can’t account for it.

By having a plan, you’ll sleep better at night even if the markets go down. Many who had plans during the 2008 crisis were able to succeed because they had a strategy. They knew they could survive a market downturn and ride it back up.

3. What other factors need to be considered?

For one, we have the age-old question of knowing how long you’re going to live, which is quite hard to prepare for. The thing is, the lifespans are increasing, and we might as well plan for age 100. So knowing this can help us make projections and can help us make proper investments. Many people consider this because they don’t want to outlive their money.

You’ll need to look at various investments and rates of return and make a plan to help you stay the course even in downturn scenarios. Inflation is also a big factor to consider since people will generally live decades after their retirement. Inflation needs to be considered even if it is historically low.

Another factor we need to consider is taxes. We need to minimize taxes during retirement. With all of these factors, it’s important to consider working with someone who has experience and good knowledge; one who can help you include all variables into our retirement plan.

4. What are next steps?

All of the previous questions can be answered with one good solution, a plan. Plan everything, run the numbers, make a solid concrete written plan that you can rely on to guide you. After you’ve made the plan, it’s all about implementing the strategy, monitoring the strategy, and adjusting the strategy. You need to do this whether you have a financial advisor or if you’re doing it on your own.

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Larry Heller, Not Your Average Advisor.


A CFP® (Certified Financial Planner) and a former CPA.

Has helped solve complex financial planning for 20+ yrs.

Member of Wealth Management Think Tank.

A financial advisor think tank that meets monthly to discuss investment strategies and planning opportunities.

Larry is approached regularly by the respected journals.

“Journal of Financial Planning”, and “The Wall Street Journal”.