Spending The Nest Egg

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What’s scary about spending the nest egg?  After all, that’s what it’s there for.  But after years of growing the savings, the only thing about spending it that’s scary is EVERYTHING!

Some fears about spending the nest egg

The obvious fear is that if you spend now, it won’t be there later when you need it for something else.  This usually hits after a few months to a year of more spending than you’d planned.  You wake up to the fact that it’s going out faster than anything is coming in.  And that’s a problem.

We hit that about three months into my retirement with $1200 in car repairs.   All of it was needed to pass inspection.  I was on track to not spend savings this year, till that moment.  But after all, that’s why to have an emergency fund.

Losing money in the stock market is scary, and especially in your retirement’s early years.  First of all, people spend more early on in retirement because they are overall healthier then and thus more active.  Activity generates expense.

But if your investments lose 30% of their value during this year, you have less money to draw on next year and less to grow your money back with at the same time.  So you stay in the hole, shortening the length of time your money will reach.

Unexpected  huge expenses get you when you don’t have money around to take care of them.  Think needing a new roof, or suddenly being required to install an in-ground heat pump to save the planet.

Taxes exist to keep us on our toes.  If you don’t know about how your monies will be taxed, read up at the IRS website, starting here.

Your nest egg should not be the only thing to live from in retirement.  It’s not designed for that, even though it may be one of two things most of us have.  We just got left in the lurch so we’ll do the best we can with what we have.

Some things to try

I’m no financial planner by any means, so you may want to find one to consult before moving money in the stock market, OK?  Thanks!

Budget for retirement liberally, not too tight!  When I retired I didn’t leave room in the budget for some things, like car repair (above).  Had to hit the emergency fund, and I wasn’t happy, but the required repairs happened and all was OK.  Learn from me:  your change of status may not mean that you don’t need as much as you did working.

Diversify your investments.  As hot as stocks have been, they are now much more dangerous to you as a retiree.  Remember that idea that your money could suddenly lose about a third of its value?  You can’t control that but you can reallocate your invested money into safer alternative investments.

I got help from Vanguard to set up a safer portfolio after they sold my risky stock fund.  My holdings are still growing and have a good bit less risk of imploding.  There are other companies that would also gladly help you (for a fee, of course).

Budget your money and divide it up into funds for this and that.  That way you have a grip on how much in taxes you’re likely to owe, and you can still do things you need or want to do.

Have an emergency fund saved from after-tax money so you don’t have to pay a tax to get at it when you need it.  Also, you may want an “extras” fund for vacation trips, special events or purchases, preferably from after-tax savings.

Pay as much as possible of your monthly expenses from Social Security, which comes monthly.

Budget out what annual expenses you expect, remember taxes, and take money from your tax-advantaged account to help cover those.  In my case I will fund the heating oil, the insurance on house, cars, and my health, and the property and income taxes from that account each year till I can cut back on some things that come out of Social Security.

Some things to remember

Your needs are different in retirement from what they were when you worked, but they may not be that different.

For example, you still have a car, though you don’t commute in it.  So you may only fill it up once a month instead of weekly now, but you still need tires, brakes, and oil changes.  Maybe not as often, but they will come.

Your clothing usage may change.  I’m usually in sweats now, but I still have “work” clothes I use when going out, to be presentable.  I just don’t launder five sets a week any more.

Lunch is now on the grocery bill, not out of petty cash.  That took a little getting used to but it’s OK now.

All in all, my basic expenses didn’t change much, except for the gas, so be warned.  Retirement may not save you a lot.  Really look at it for your budgeting.

It’s a big change, switching from just accumulating money to trying not to blow it all in one place, while simultaneously taking care of it and trying to get more somehow.  All we can do is our best, and learn as we go.

If you sense you need more than you’ve saved, you have lots of company.  Try getting a part-time job or find a way you can make a little extra money.  Sell off some of that nicer stuff you never use.  Try to go down to one car if you have two, or see if you need one at all.  Those things are as expensive as kids.

And don’t forget you may have assets like a house or vacation place that are now more than you need.  It may come time to change that, if you’re worried about not having money.

Spending your nest egg will happen

Your hard-won nest egg is there to be spent.  It’s up to you to figure out how much of it you will depend on year to year.  I have chosen to assign my nest egg certain expenses and base withdrawals on the amount needed to cover them.  You may have better ideas.

Not all of us are going to live through our 80s, much less our 90s.  Being realistic about one’s chances may bring relief of a sort.  There are online calculators for life expectancy available.   Check them out if this is part of what worries you.

Mostly, though, we are of an age when consuming is probably not the most critical thing we can do.  We already have pretty much all we need, and then some.  Your Christmas gifts will tell you that.

Our role is no longer to buy, buy, buy.  We should shift to giving of our accumulated wisdom and newfound time, and use money to live while we can.

I hope that gives you some ideas about what you can do to reduce worrying about spending your nest egg.  Comments are welcome!





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