Why Savvy Savers Should Spend More in Retirement – Part 2
If you missed Part 1 of this series, we recommend that you either read through our blog post here or listen to the podcast here. Continuing on with Part 2 of why savvy spenders should spend more in retirement, we decided to bring in our own Taylor Wolverton, CFP ®, Enrolled Agent, on the discussion.
Foundation of Why Savvy Savers Should Spend More in Retirement
Oftentimes, we have conversations with clients who have more money than they’ll need in retirement. However, at times the fear of running out of money is so great that even when it’s a necessity, they hesitate to spend. Because of this, many will pass on a multimillion-dollar legacy to their beneficiaries at death, whether that is their true intention or not.
Let’s look at some examples of this concept.
Husband and Wife, Both 69 Years Old
Our first example to illustrate the idea is a husband and wife, both currently age 69, with the following details:
- Both fully retired- not currently receiving wages or employment income
- Husband receives $4,000 a month from Social Security
- Wife receives $2,700 a month from Social Security
- Wife receives a pension of $1,900
- Cash savings of $200,000
- Husband’s IRA balance is $1,360,000
- Husband’s Roth IRA balance is $50,000
- Wife’s IRA balance is $830,000
- Wife’s Roth IRA balance is $44,000
- Joint brokerage account containing stock worth $80,000
In total, the couple has $2,564,000 between cash savings, IRAs, Roth IRAs, and stock along with steady sources of income from their pension and social security benefits.
Let’s look at their spending.
Spending
This couple spends about $12,000 per month to cover their expenses. This does include $6,000 to $7,000 per year that they use for travel. In our long-term projections of this scenario, we assume inflation on their expenses at a rate of 3% per year for the duration of their retirement.
Note: When we meet with the client, we try to gather as much information as possible to have an awareness of relevant figures, but there are times when someone forgets about an account or a small pension, so it’s something that we continuously review and tweak as necessary over time.
Assumptions
As previously mentioned, we assume inflation will rise 3% per year. To stress test a retirement scenario, we also assume that the invested assets will have a 4% to 5% return each year which we believe is conservative. We assume the social security and pension amounts stay the exact same with no cost-of-living adjustments over time.
What the Couple’s Retirement Page Looks Like
Clients of ours receive a one-page retirement summary that outlines income and expenses for the duration of their retirement. For this couple, the page will show the following:
- $1,900 per month from the pension
- $6,700 per month in combined Social Security benefits
- After subtracting an estimated for tax withholdings, net income is $8,400 per month
Based on the couple’s current spending habits, they need $3,600 – $4,000 distributed from their accounts per month to make up for this difference. The couple has over $2.5 million in savings, IRAs, stock, etc., so they have a decent amount of money available to take distributions from.
Both spouses are age 69 today. At this rate of distribution, what will happen by the time they’re 80?
Inflation Calculation
The couple spends $12,000 a month at age 69, and by 80, with a 3% inflation rate, this figure will be $16,900. In just 11 years, additional pressure is put on the savings and investment accounts because the couple needs about $8,500 a month to cover expenses after pension and Social Security.
You can quickly see how inflation will impact your assets.
At age 69, the couple had over $2.5 million in retirement accounts, and by age 80, we project they will have around $3.2 million. If you were feeling stressed up until this point, you’re not alone. But with a conservative 5% annual rate of return, the couple in this example has more in savings and investments at age 80 than when they started at age 69, even when taking regular monthly distributions to cover their expenses.
What about at age 90? In this scenario, the couple is projected to have $2.9 million in savings and investments. Withdrawals started to impact the accounts somewhat, but at age 90, the total value is nowhere near an amount that would cause concern around the ability to maintain the current level of spending.
You can do a lot with $2.9 million and enjoy the money that you worked so hard to accumulate. We know that this couple puts aside $6,000 to $7,000 to travel, but they do have a few bucket list trips that they would love to take.
$30,000 Trip Added In
The couple is nervous about taking these bucket list trips because they will have to take a larger withdrawal. For a few years, the couple has wanted to take a $30,000 trip that they couldn’t because of work and other obligations.
We always sit down to crunch the numbers with our clients because retirement spending is a major source of anxiety for a lot of retirees.
What we show the client is something like this:
- Remember, at age 90, without taking this trip, you’ll have $2.9 million.
- Let’s add in the $30,000 expense at age 69. What’s the long-term impact at age 90? The couple has $2,780,000 instead of $2.9 million.
- Over 20 years, they may lose about $120,000, but they were able to tick something off their bucket list.
Will the trip and memories be worth the money? For most people, the answer is a resounding “yes.”
$35,000 Trip Added in for 2026
Perhaps the couple was so excited about their first trip and didn’t mind the retirement spending, so they added in an additional trip of $35,000. By age 90, with the $30,000 and $35,000 trip taken, the couple will still have $2.6 million in savings and investments.
Passing $2.6 million to your beneficiaries is always going to be a nice gift.
Withdrawing money and adding in these larger expenses into your retirement planning really comes down to “what are you working for in retirement?” The sooner we can add these figures into your plan, the faster we can secure your retirement.
We encourage you to start looking at the things that you really want to do in retirement and begin planning them now.
It doesn’t matter if you would never spend $30,000 on a trip or don’t have $2.5 million in retirement accounts.
Spending and retirement accounts vary drastically between couples. If you’re not spending more than you have, there’s always a good chance that you can start checking off some of the items on your bucket list and still have more than enough money for yourself well into retirement.
We can run these numbers for you so that you can feel confident about spending more money and making memories for yourself while in retirement.
If you have any questions or would like us to run the numbers for you, please feel free to reach out to us.