Helping Make Your Retirement Money Last

For every five years longer a retiree lives, he or she spends about 15 percent less on average. This means that people in their 70s spend about half of what they do in their 50s. Even with the ramp-up in medical expenses that often comes later in life, retirees still tend to spend less as they progress through what is termed the three phases of retirement.

One study found that nearly 40 percent of retirees spend an above average amount on food and beverages (“foodies”), 30 percent tend to spend more on home-related expenses (“homebodies”) and 5 percent are travel enthusiasts (“globetrotters”).

These are some categories by which to measure your own spending objectives in retirement, as they can help you establish a retirement income withdrawal level that can help meet your lifestyle goals, but note that they may also curb downward and change as you get older.

While identifying the typical spending behaviors of retirees can be helpful when considering your own retirement income, every person’s situation is different. For example, someone who experiences a health care issue early on may find that their lifestyle spending decreases faster than a retiree who is a foodie or homebody. 

Retirement should be a time to take a long-needed break -- from working, from worrying and, hopefully, from scrimping and saving. You hope to be in a place in which you can spend for what you need, plus a little more now and then for your passions, whether that’s golf, the grandkids or the Grand Caymans. 

As you build a financial strategy, consider each component. It may be effective to diversify your income sources among an array of sources, such as Social Security, pension and an annuity, along with options that may provide growth potential to generate cash flow to help pay for discretionary living expenses.

This calls for reviewing a number of factors, such as when to begin drawing Social Security. Recognize that each spouse may benefit from a separate strategy. If you have an employer-sponsored retirement plan, review plan rules on partial distributions once you’ve retired, as some can be quite restrictive and may require repositioning of those assets.

Before you finalize any distribution strategy, carefully review the tax status of each account you own to determine when to withdraw money so that you don’t tip yourself into a higher tax bracket in any one year. You should talk to a financial advisor and tax professional about how to create a tax-efficient retirement income distribution strategy.

Interested in reading more?  Here are some articles that may be of interest to you:

[CLICK HERE to read the article, “Using Age Banding to Estimate How Spending Will Decline in Retirement,” from Nerd’s Eye View. November 2, 2016.]

[CLICK HERE to read the article, “How Near-Retirees Can Build a Retirement Income Portfolio,” from CBS News. December 1, 2016.]

[CLICK HERE to read the article, “Couples’ Guide to Maximizing Social Security Benefits,” from CNBC. November 22, 2016.]

[CLICK HERE to read the article, “Plan Sponsors Can Help with Retirement Income Strategies,” from Plan Sponsor. November 2, 2016.]

[CLICK HERE to read the article, “Four Tax-Efficient Strategies in Retirement,” from Fidelity. September 7, 2016.]

Raymond C. Lantz, Jr. is the president and founder of USA Wealth  Group, Inc. Ray has many years of experience advising clients in retirement and sophisticated tax planning strategies, multi-family and commercial real estate projects, and legacy planning. Ray is a graduate of Clark University, holds a law degree from Boston College, and a master of laws in taxation from Boston University. You can hear him every Sunday on Money Wise with  Ray Lantz on WBSM 1420AM or on the Radio Pup app.