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Spending Down Your Assets in Retirement

In a world where individuals are now more responsible for decisions about financing their retirement, careful preparation is vital. One key element to consider is how you plan to spend down your assets so they will last as long as you do.

You’ll need to determine how much money it will take for the retirement lifestyle you want. Some financial experts say you'll need somewhere around 70 percent of your pre-retirement income to live comfortably in retirement.  However, if you expect to replace work-related expenses with travel, entertainment, or other activities, you may need more.

If you remain in good health, your retirement could last 30 years or longer, so your spend-down plan should be well thought-out. Among the most important decisions are those involving Social Security, investment and withdrawal choices of retirement assets, and what to do with your home. 

Individual circumstances, of course, will help determine the best choices. But here is some general guidance, as well as actions to consider, as you plan your retirement spend-down.

When should I claim Social Security?

Social Security provides a government-guaranteed, inflation-adjusted, lifetime income stream. Eligibility for full retirement benefits depends on when you were born. People  born before 1938 have full retirement at age 65. Those born after 1959 have full retirement at 67. If you were born between 1938 and 1959, your full retirement age will be between 65 and 67.

It is possible to begin receiving Social Security retirement benefits as early as age 62, but monthly payments will be reduced – perhaps substantially, depending on how soon they begin. Benefits for your spouse or survivor could also be affected.  You can increase your monthly benefit by delaying claiming up to age 70. 

Although individual needs and desires will vary, for many people the best approach for a financially secure retirement is to delay both retirement from work and the start of Social Security benefits until the full Social Security retirement age is reached.   Factors affecting the best approach for you include your health and your other sources of income.

Action Step:

• Use the Social Security Administration’s online calculators. Find your normal retirement age and estimate your monthly benefit at the Social Security Administration Web Site.

• Consider whether delaying retirement a year or two past the full retirement age might be in your best interest.

How should I allocate my assets?

Currently, many investors place a large portion of their savings in short-term deposits and hold no stocks. Often it is more advantageous to hold a diversified portfolio that includes stocks and bonds in addition to cash. People who are very secure financially may be more comfortable with more risk in the stock market, but for those seeking more security, there are safer options such as inflation-protected bonds. In general, you should moderate the overall risk in your portfolio as you near retirement to protect your retirement savings.

Action Steps:

• Consider investing your money in a diverse group of stocks, bonds, and cash funds appropriate to your level of assets and comfort with risk.
• Review Money Matters Tip Sheet, “Investment Tips.” 

• Consider consulting a reputable financial planner for advice on the allocation of your savings.  Review Money Matters Tip Sheet, “Working with a Financial Planner.”

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