After decades of saving diligently to build up a strong retirement portfolio, it can be tough to flip the switch when it comes time to stop working. Underspending is a common issue, especially early in retirement.
At the same time, many people fear running out of money too soon into retirement, especially with inflation a concern.
Financial advisors and clients often use the 4% rule as a reference point for flexible spending throughout retirement. The rule is relatively simple. A retiree adds up all their investments and withdraws 4% of the total during the first year of retirement, adjusting the dollar amount every subsequent year to account for inflation.
However, some experts now divide retirement into three periods: go-go, slow-go and no-go. The last period is when medical expenses outpace money for leisurely activities. Like with most aspects of accounting, however, it depends on a client’s financial situation. Consider these strategies for advising clients about their retirement spending.