Retirement Spending: Adjusting to Your Needs and Goals
Retirement security is a concern for many older Americans, with the fear of outliving savings being a common worry. According to recent research from Cerulli Associates, 58% of savers and retirees are worried about running out of money.
However, certified financial planner Justin Fitzpatrick believes that retirement spending should not be seen as a pass-fail situation. Speaking at the Financial Planning Association’s annual conference, Fitzpatrick, co-founder of Income Lab, a retirement planning software company, emphasized that retirement spending is not static and can be adjusted over time based on individual needs and goals.
Transitioning from Steady Paycheck to Retirement Income
Retirement can be a disquieting experience for individuals who are used to a steady paycheck. The uncertainty surrounding retirement income can lead to paralysis. Fitzpatrick highlights the importance of considering the following factors:
- Retirement expenses can be adjusted based on individual preferences and priorities.
- Small adjustments, such as opting for more affordable dining options or skipping vacations, can help manage expenses.
- While these adjustments may not be initially preferred, they are far from leading to total financial ruin.
Fitzpatrick reassures retirees that total financial ruin is “almost impossible” because individual liabilities can be small, and spending typically occurs gradually, allowing for minor and temporary adjustments over time.
Using “Risk-Based Guardrails” in Retirement Planning
Fitzpatrick recommends leveraging “risk-based guardrails,” which involve predefined guidelines, to manage retirement spending. This strategy utilizes planning software and takes into account factors such as longevity, future cash flows, and income changes. The key steps are as follows:
- Identify a reasonable spending level based on your circumstances.
- Regularly monitor and update the retirement plan.
- When the risk of maintaining the current spending level becomes too high, adjust spending accordingly.
Fitzpatrick emphasizes the role of a financial advisor in acting as a spending GPS, guiding individuals through the retirement journey and notifying them when adjustments are necessary.