It is possible to squirrel away funds for your golden years while still enjoying life<\/p>\n
You have worked your whole life to save up enough to retire. And now you have \u2014 but you are afraid to spend those hard-earned savings.<\/p>\n
Being frugal in retirement may seem like a good thing. You are most likely living on a fixed budget with no more paychecks flowing in. For many retirees, however, concerns about outlasting their savings leave them limiting themselves unnecessarily.<\/p>\n
For many retirees, the \u201cbiggest hurdle is psychological rather than financial,\u201d said U.S. News & World Report. \u201cMany retirees have spent decades living below their means, making thoughtful financial decisions and consistently saving for the future,\u201d which means that \u201cby retirement, those behaviors have become second nature.\u201d It can be hard for these retirees to suddenly change their money mindset and pivot to spending the retirement savings they worked so hard to accumulate.<\/p>\n
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Fear is another component. \u201cAccording to a recent survey by the Employee Benefit Research Institute, more than three in four retirees agree they can afford to spend freely \u2014 but nearly half say they still underspend out of fear they\u2019ll run out of money,\u201d said Charles Schwab.<\/p>\n
Then there is the very real puzzle of figuring out an appropriate amount to spend. After all, it is impossible to know how long you will live or how well your investments will perform.<\/p>\n
The risk of overspending in retirement is obvious; the risk of underspending may be less so. But \u201caccording to financial advisors, it ultimately amounts to something similar: not living as fulfilling a life as one could have,\u201d said CNBC. \u201cIt represents a life not lived, the vacations you didn\u2019t take because you were afraid you were going to run out of money,\u201d said certified financial planner Marianela Collado to the outlet.<\/p>\n
Sure, you can ultimately pass on what remains to your heirs or to a charity or another organization of your choosing. But by playing it safe and never tapping into what you worked so hard to accrue, you never get to reap the rewards of all that labor.<\/p>\n
Admittedly, the \u201c\u2018right\u2019 withdrawal rate is far from settled science, in that you\u2019re trying to figure out how much to extract under uncertain market conditions and an unknowable time horizon,\u201d said Morningstar. Instead of trying to come up with a hard-and-fast withdrawal rule that will last throughout your retirement, think of it as something you can continually reassess as your circumstances shift.<\/p>\n
Known as \u201cflexible withdrawal strategies,\u201d these \u201cebb and flow with a portfolio\u2019s balance,\u201d said Morningstar. Such strategies may allow you to withdraw more of your portfolio during your own lifetime \u201crather than leave behind big balances after death.\u201d Maybe you slow down your spending after a big year of travel, for example, or a market downturn. As long as you allow yourself to ramp it up when things are going well and you have golden years you want to live to the fullest.<\/p>\n
Becca Stanek has worked as an editor and writer in the personal finance space since 2017. She previously served as a deputy editor and later a managing editor overseeing investing and savings content at LendingTree and as an editor at the financial startup SmartAsset, where she focused on retirement- and financial-adviser-related content. Before that, Becca was a staff writer at The Week, primarily contributing to Speed Reads.\u00a0<\/p>\n