If you’re retired, chances are you’ve put a lot of thought and planning into your finances. But even with a solid plan, it’s a good idea to check in now and then to make sure your spending is still in line with your goals and lifestyle.
One simple way to do this is to look at what financial planners often call the “4% rule.” It’s a general guideline that says if you withdraw 4% of your retirement savings in your first year of retirement—and adjust that amount for inflation each year—your money should last about 30 years. While it’s not a perfect rule for everyone, it gives us a helpful ballpark to work from.
Let’s say you have $800,000 in retirement savings. According to the 4% rule, that would mean about $32,000 a year from your savings, on top of Social Security or any other income sources you may have.
Of course, life doesn’t always follow rules. Maybe you’re spending a little more now on travel or home projects, or maybe you’re spending less than you expected. Either way, it’s important to know whether your current pace of spending is sustainable over the long run. A quick review once or twice a year can help keep you on track—and give you financial confidence.
What Happens When the Market Goes Down?
One important thing to be aware of in retirement is something called “sequence of returns risk.” This means that if you have to withdraw money during a down market, especially early in retirement, it can have a bigger long-term impact than you might expect. Selling investments when their value is temporarily down means you’re locking in those losses, which can make your nest egg shrink faster than planned.
So what can you do?
Consider a Flexible Withdrawal Strategy
Rather than sticking rigidly to the same dollar amount every year, many retirees find success by adjusting slightly based on how the market is doing. For example, if the market has a particularly rough year, you might consider pausing any inflation increase or temporarily trimming your withdrawal by a few percent. It doesn’t have to be drastic. Even reducing your withdrawal from 4% to 3.5% for a year or two can help preserve your savings and give your investments time to recover.
If that kind of adjustment sounds stressful, remember that flexibility is your friend. Maybe you skip a big vacation this year but plan one for next. Or you delay a larger purchase until the market rebounds. Many retirees find they have more control over their spending than they thought—they just need a little guidance.
Let’s Make a Plan That Fits You
The goal isn’t to worry every time the market dips—it’s to be prepared. Having a plan in place for how you’ll handle different market conditions can help you feel more confident, even during uncertain times.
If you’d like help reviewing your withdrawal strategy, adjusting for market conditions, or just making sure you’re on the right path, let’s set up a time to talk. Your retirement should be about enjoying life, not stressing over spreadsheets.
