Spend Your Principal! Ep #323

Most people are worried about spending too much and running out of money in retirement. However, few people worry about spending too little.

In this week’s episode of Retirement Starts Today, you’ll learn why you should spend your principal in retirement. Our retirement headline comes from Dr. Jim Dahle at the Whitecoat Investor and shows us why many people don’t spend enough of their money and how you can take a practical approach to spending more.

If you are like most people, one of your main worries about retirement is that you’ll end up running out of money. While this is a well-founded fear for many underfunded Americans, chances are, if you are listening to this show, you aren’t an underfunded retiree.

While the current state of retirement savings is quite shocking, if you have a healthy retirement portfolio, you don’t have to lump yourself in with the majority of Americans.

Outline of This Episode

[1:52] Many people have a fear of running out of money in retirement
[3:40] The state of retirement savings
[7:02] Why some people don’t spend their principal
[13:19] What should you do with excess RMD dollars?

Reasons you won’t run out of money even if you spend your principal

When you withdraw from your portfolio you’ll make the proper adjustments based on market conditions. When markets are down you’ll reduce your spending.
Many retirees have more than enough saved for retirement. They end up spending less than what their portfolios allow.
Most retirees are overly cautious when withdrawing from their portfolios. Often they rely on the 4% rule which leaves them with even more than their original portfolio at the end of their retirements.
Some people over-plan their mortality. Not everyone will live to 90.
Some people have an irrational fear of spending their principal based on faulty advice. Doing the math can show you that spending your principal will not deplete your retirement savings.

Don’t be afraid to spend your savings

While the fear of running out of money in retirement is widespread, the reality is that most retirees do not deplete their savings. Several factors, including prudent adjustments, substantial portfolios, cautious withdrawal strategies, mortality rates, and the rationality of spending principal, contribute to this outcome.

Even following relatively conservative spending plans, like the 4% safe withdrawal rate can lead to underspending. Don’t be afraid to spend your savings, yes even your principal – you saved it up for a reason, so let’s work on spending it!