Retirement is the light at the end of the tunnel we are all seeking. You’ve spent at least a good 40 years aiming for this destination. During that time, you were conditioned to save early and often. You knew never to touch this money; never take unnecessary risks with this money; never withdraw early and face penalties. Your retirement savings were the reason you worked so hard—the driving force for most of your financial decisions.

However, when it comes time to actually draw upon your savings in retirement—that can often be a hard pill for investors to swallow. Rarely does anyone discuss the psychological hurdle investors must make to go from saving to spending. It just happens overnight. One day you’re receiving a paycheck, and two weeks later, you’re not. It can be a surprising shock for a lot of people.

Working through this transition has become a significant part of the plan. Your financial adviser should be taking the time before you retire to discuss the spending stage of retirement. You should be walked through the process of how the assets come back to you and how you are spending them. This process is often incorporated in the annual spending you and your adviser work through together. Surprisingly, it is more common to see retirees underspend because they fear their assets will run out before their life expectancy. I recommend developing plans so that funds last through age 92 at a maximum spending level. When investors are spending below their maximum spending, assets are likely to last well into age 100. This difference between annual spending and maximum spending helps retirees weather events that cause financial hardship, in addition to events that they cannot control, like widespread inflation or severe market fluctuations.

I spend a lot of time explaining the Ten Year Rule, and how it can help ensure that an investor’s expenses are continually covered for 10-year rolling periods with funds that are protected from the volatility of the market. However, it is equally important for investors to understand that a profound amount of work went into calculating how much is needed for a retirement that lasts 20 to 30 years. Annual retirement spending isn’t just earmarking increased funds that allow you to pursue your hobbies. It accounts for health care costs that are not covered by Medicare; housing expenses that you’ve traditionally covered in the past; i.e., maintenance you can no longer physically do and normal wear on an aging property; transportation costs that may include unexpected travel to help family when there is an illness or death, and even upgrading or replacing everyday electronics, like computers and cell phones, that keep you in contact with your family.

When investors know that these aspects of life are represented in those 10 years of spending needs and in how much they have saved over the years, it allays many of the fears of not receiving a paycheck and outliving saved assets.

William G. Lako, Jr., CFP®, is a principal at Henssler Financial and a co-host on “Money Talks”—your trusted resource for your money, your future, your life—airing Saturdays at 10 a.m. on AM 920 The Answer. Mr. Lako is a CERTIFIED FINANCIAL PLANNER™ professional.

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