W
ill you run out of money before
you run out of time? Probably
not, especially if you’ve saved
well. But the fear is so common, even
among the affluent, that retirees often
cheat themselves out of enjoying the
rewards brought about by many years
of careful saving and investing.
One study looked at spending by retir-
ees to see if most were in danger of run-
ning out of money. The conclusion? Quite
the opposite. Researchers discovered that
retirees with median wealth could spend
8 % more on average. And wealthier retir-
ees could spend up to 53% more.* So, let’s
look at ways to ensure you’re deploying
your nest egg to its fullest potential.XDon’t overestimate inflation
Retirees are often worried that inflation
will eat away at their spending power.
And while annual US inflation has aver-
aged around 3 % over the past 100 years,
that doesn’t necessarily mean your
spending needs to increase by 3% a year.
At Personal Capital, we’ve found that
many investors actually spend a bit less
as they go through retirement. Some fac-
tor this in as a gradual decrease (say 1%
a year), and others choose to block their
spending out in years. For example, bud-
geting $ 80,000 each year for the first
10 years of retirement, then $70,000 over
the next 10 years when travel desires or
ability decreases.
Here’s another way to look at this: Say
you and your spouse, newly retired, start
off spending $50,000 a year and increase
that amount 3% annually to match aver-
age inflation. In 20 years, you’ll be with-
drawing just over $ 90,000 a year.
But if you take $ 57,000 a year initially
and increase it by 2 % annually, in 20 years
you’ll be withdrawing $ 84,700 a year.
Both scenarios plan for inflation. But inADVERTISEMENT
Michelle Brownstein, Vice President of Private Client Services, CFP®
PROFESSIONAL INSIGHTS FROM PERSONAL CAPITAL
annual income during your career. Upon
retirement, however, that savings goal
goes away. Other costs might decrease,
too, such as paying for a mortgage or
commuting costs.
Writing out an actual budget, even if
you haven’t been on a budget in many
years, is the best way to estimate your
spending. Our free Retirement Planner
tool can also help you get a handle on
costs that will change in retirement.[Set aside money for splurges
Perhaps you’ve had a good year in the
market but aren’t quite ready to take that
around-the-world-trip, renovate the
house, or buy a new car. By all means
withdraw the extra cash now for your
splurge, and park it in an FDIC-insured
account until you’ve earmarked enough.
That way, you won’t lose your windfall if
the market turns sour.
Check out Personal Capital Cash,†
a high-yield account with an APY that is
23x‡ the national rate for traditional sav-
ings accounts.\Personalize a withdrawal plan
Everyone’s tax situation is different, and
a personalized plan will consider how to
minimize taxes on withdrawals in order
to maximize your spending. Tools such
as Smart Withdrawal take the guess-
work out of this process. Available to
investors who work with a Personal
Capital fiduciary professional, Smart
Withdrawal uses advanced forecasting
to predict an optimal spending strategy
to support the lifestyle you’ve earned. ■Personal Capital offers free online financial
tools, a mobile app, a high-yield account,
and personal wealth management services.
Learn more at http://www.personalcapital.com.* Spending in Retirement: Determining the Consumption Gap, Journal of Financial Planning, Feb 2016. † Personal Capital Cash is offered through Personal Capital Services Corporation
(Personal Capital), which is not a bank. To participate in the program, you must open an account at UMB Bank, member FDIC. ‡ The Personal Capital Cash™ A nnual Percentage Yield (A PY )
is 2.05 % as of 8/01/19 and is variable and subject to change at our discretion at any time without notice. The national rate is calculated by the FDIC as of 8/01/19 based on a simple average of rates
paid (uses annual percentage yield) by all insured depository institutions and branches for which data are available. Visit http://www.personalcapital.com/cash for full terms and conditions.the second case, you’ll have more to
spend in the beginning of your retire-
ment, when you may enjoy it more.YMake a plan for bear markets
Fear of a market downturn keeps many
retirees in a perpetual state of austerity.
But rather than agonize over the future,
be flexible. For example, some retirees
spend more money on travel and other
discretionary items when the market has
done well. Then, in a year when their
portfolio underperforms, they withdraw
only what’s needed to cover nondiscre-
tionary living expenses.ZDon’t overestimate your needs
Many people assume they’ll need 80 %
to 100 % of their current income during
retirement. But maybe you don’t—espe-
cially if you’ve been saving a lot.
Let’s say you’re a high-earning, high-
spending couple, so you correctly assume
you will need more assets in retirement.
You’ve dutifully socked away 25% of yourYou May Be Able to Spend More
In Retirement Than You Think
“One study shows that
wealthier retirees could
spend up to 53% more.”