To retire right, switch focus from saving to planning how to spend

When it comes to retirement, most of the focus is on saving because helping clients save diligently throughout their working years provides a financial cushion, ensuring that they have the means to maintain their desired lifestyle in their golden years. However, simply accumulating wealth is only one side of the coin. The other side is having a retirement spending plan.

Financial advisors and retirement planning experts are now stressing the need for a comprehensive retirement spending plan to complement savings strategies. A retirement draw-down blueprint involves understanding and managing where to take proceeds from first, while managing taxes and expenses. This allows our clients to make informed decisions about their lifestyle choices, including leisure activities and healthcare needs, while also addressing what Uncle Sam gets and ways to potentially minimize taxes.

One key aspect of a retirement spending plan is establishing a realistic budget tailored to the retiree’s specific circumstances. This includes factoring in anticipated living expenses, healthcare costs, travel, major purchases and legacy goals. Often in retirement some expenses decrease while others increase. For instance, many retirees pay off their mortgage in the early years of retirement but will spend more on health insurance until they qualify for Medicare at age 65. By having a clear understanding of these factors, retirees can avoid unnecessary financial strain and make more informed choices about their spending habits.

Additionally, a retirement spending plan takes into account potential sources of income during retirement, such as part-time work, pensions, social security benefits, and withdrawals from investment portfolios. Through this process, we help our clients make smart decisions about which accounts their income should come from and how much they should take. The retirement spending plan focuses on not only replacing the income of the retiree, but providing income that is sustainable and tax efficient. This holistic approach ensures that our clients have a sustainable income stream to support their chosen lifestyle throughout their retirement years and beyond.

While end-of-life planning isn’t the most pleasant task, we also discuss with clients how their money can have an impact beyond their lives as a legacy. Often it can be rewarding for clients to consider what they want their wealth to do for others after they have passed. For many, this includes providing inheritances for children and grandchildren or giving a portion of their wealth to a charity. What a client desires regarding their legacy will impact what they should spend in retirement.

Just like your retirement savings plan, the spending plan isn’t set it and forget it. Periodic reviews are needed to accommodate life changes while considering inflation and economic fluctuations. This proactive approach allows clients to adapt to evolving circumstances, ensuring that their financial strategy remains resilient over the long term.

While building a robust retirement savings plan is a critical first step, the true key to a secure and stress-free retirement lies in the integration of a well-thought-out retirement spending plan that should last a lifetime. By addressing both aspects, clients can embark on their retirement journey with a high degree of confidence, knowing that they have not only saved diligently but also strategically planned for a fulfilling and financially sustainable future.

Editor’s note: Joel Amaro is a client advisor with Arvest Wealth Management. The opinions expressed are those of the author.