A good friend of mine has a father in his early 70s who was largely an average wage earner throughout his career. But because he made a point to save diligently and invest well, he's now sitting on a nest egg worth, by her estimates, about $2 million.
You'd think that would put him in a pretty great position to enjoy retirement to the fullest, especially since he has a nice Social Security paycheck on top of that. But instead of enjoying his savings, my friend's father is mostly leaving his nest egg untouched. And the main reason boils down to fear.
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Like many retirees, my friend's father is worried about running out of savings in his lifetime. Since he clearly has no idea how long he'll live, his goal is to leave his nest egg untouched until he's forced to start taking required minimum distributions. (He's almost at that point, but not quite there.)
But even then, my friend says he's basically afraid to use that money and plans to put it in the bank or reinvest it. And that's not a good thing because, as my friend puts it, after a lifetime of hard work, his savings should be bringing him joy.
If you're a new retiree who's scared to tap your nest egg, you're no doubt in good company. But with a solid strategy, you can enjoy the money you've worked hard to save without excessive worry.
It's all about being mindful of your withdrawals
If you start randomly withdrawing funds from your 401(k) or IRA to do things like travel or cover different retirement expenses, then you might, eventually, run out of funds. But if you're careful about taking withdrawals, then you may find that your savings will last as long as you need them to.
Your best bet in this sort of situation is to sit down with a financial advisor and work together to come up with an annual withdrawal rate that's suitable for you. Don't just follow the 4% rule because it's what financial experts advocated for years, because many professionals feel that at this point, that rule is fairly outdated.
Given today's market conditions, a 4% withdrawal rate might cause you to deplete your savings prematurely. But a 2% or 3% rate might be appropriate.
Review your expenses and goals with an advisor to come up with a withdrawal rate that works for you initially, and then prepare to adjust that rate, as needed. And keep in mind that your goals might look different during the early stages of retirement than in the later stages.
One thing that's frustrating my friend so much right now is that she wants her father to use some of his money to travel since he hardly took vacations when he was raising her, and even after she'd long left the nest. She doesn't want him to wait until his 80s to feel comfortable taking a $10,000 withdrawal to fund a trip because at that point, who knows if he'll feel up to it physically?
Similarly, you may want to take larger withdrawals early on in retirement to get out and do things at a time when you can capitalize on your good health. An experienced advisor should be able to help you do that without putting you at risk of running out of money.
You deserve to enjoy your savings
If you're sitting on a decent-sized nest egg, that money surely didn't come from nowhere. Rather, it came as a result of your hard work. So use that money to better your life and make your retirement fulfilling and meaningful.
It's natural to be scared about tapping your nest egg. But if you go about it the right way, you can enjoy your savings without tearing through that money too quickly.
