Five Tips For Safely Spending In Retirement


Just about everyone from financial gurus to employers to the government will encourage workers to sock away a portion of their hard-earned cash each pay period for retirement.

While there are some studies that indicate quite clearly that many have either been unwilling or unable to do so, there are other Americans who have been able to save a nice nest egg for their golden years. Recommendations on how to spend down this stash of cash are a bit less common. Here are some tips that can help you ensure that you do not run out of cash in retirement.

1. Spend 4 Percent Per Year

The so-called 4 percent rule is considered the gold standard when it comes to spending down a nest egg. A bit of research called the Trinity Study looked into how successful a retiree who spent down 4 percent of his or her portfolio over a 30-year period would be at not running out of money. After going back to the period before the Great Depression, the study found that in no 30-year period would a person spending only 4 percent a year have gone broke.

Just putting money under a mattress and spending at this rate would provide for 25 years of spending although much of the purchasing power would likely be eroded due to inflation. Investing in a mixture of stocks, bonds and CDs would allow a retiree to maintain much of her purchasing power while also possibly adding to the principle amount of savings over time.

2. Spend Only Dividends or Interest

For those who are able to accumulate a massive nest eggs approaching $1 million, a portfolio of stocks or bonds that yield 4 percent in dividends or interest would provide the ability to spend $40,000 annually in accordance with the 4 percent rule without touching the principle. Investors who put money into dividend stocks that routinely grow their dividends could see both a capital and income appreciation over time.

3. Keep a Year or Two in Cash

Many retirees are uncomfortable with the stock market in the wake of the Great Recession. Those who have this concern might want to keep a couple of years of cash in the bank to take care of expenses should the market drop. The worst time to sell off a portion of a portfolio, unless a particular stock is no longer bringing in revenue and income, is when the market is down. Solid companies will usually rebound relatively quickly, and it would be a shame to have to sell at a low when simply having cash to fund living expenses would alleviate this necessity.

4. Hold off on Social Security

Retirees can take Social Security payments starting at age 62, but the amount of payments will perpetually be reduced by 25 percent. For every year that a retiree goes past the “regular” retirement age (generally 66 or 67), he will add 8 percent to his annual payment. Living a bit more frugally early in one’s golden years can lead to more income to spend later in retirement.

5. Look for Discounts

Many businesses will offer discounts to those who are retired. For example, some Kroger stores offer seniors a 5 percent discount on Tuesdays. Therefore, it makes sense to purchase groceries on Tuesday if you have access to this opportunity. Those who want to travel for leisure or to visit family could benefit from credit card sign-up bonuses that offer frequent flyer miles or hotel points for free or highly discounted trips. Instead of buying a book, borrowing from the library can save money as well.

Those who have even a modest nest egg and stretch their dollars by taking advantage of some or all of the strategies listed above. Of course, the bigger the nest egg that a person is able to accumulate before retirement will greatly impact the amount that he or she might be able to spend, but tracking finances closely and taking advantage of the information that is available can be a big benefit in the long run.

Photo: Pug50 / CC 2.0