Dear Carrie: My husband and I are both in our early 60s and plan to retire in a couple of years. We count ourselves among the lucky who have been able to save a reasonable amount. But even so, as we look ahead, we're kind of scared of actually having to spend that money. Any tips on how to feel better about making this shift away from a reliable paycheck and starting to erode our savings? -- A Reader
Dear Reader: First, congratulations on your successful retirement saving --and on planning for retirement spending. Both are equally important for your long-term financial security and can help you achieve peace of mind. But you're right that the transition from saving to spending can be difficult. It's an interesting conundrum. We spend so much of our lives saving for retirement, and then when it comes time to spend our savings, we can feel scared or even guilty.
But there's another way to look at it. Here's an example. Recently, a friend's husband had to begin taking required minimum distributions from his IRA (he turned 70 and a half). He too felt anxious about dipping into these funds. Much to his surprise, when he actually made the first withdrawal, rather than feeling bad, he felt elated. It was as if he were rewarding himself for all his years of hard work. What's more, he was inspired to take a more active approach to managing his remaining funds to try to grow them back to cover the withdrawal. So, all in all, it was a positive experience.
I think there are two things we can draw from this story. One is that we do deserve to enjoy the fruits of our labor in retirement (just as we deserve a paycheck during our working years). And two, the key to not being scared about spending our money is to remain active and involved in managing it. So to help you feel more secure as you approach retirement, here are some initial steps to take.
FIGURE OUT YOUR ANNUAL CASH NEEDS
How much will you spend annually in retirement? Realistically, probably about what you spend now. Travel, entertainment, health care costs -- they all add up, even if some other costs go down. You might possibly shave 10 or 20 percent off your living expenses, but best to start out expecting to spend more.
LIST YOUR INCOME SOURCES
Add up things like Social Security, pensions or income from real estate. How much of your annual expenses will they cover? Figure that the remainder will have to come from your savings.
USE THE 4 PERCENT RULE AS A GUIDE
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