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Retirement Spending– You Saved It. Now Will You Spend It?

Retirement Spending– You Saved It. Now Will You Spend It?

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We spend decades saving for retirement, but what happens when it is finally time to spend that money? In this episode of Nurturing Financial Freedom, Ed Lambert and Alex Cabot of Birch Run Financial explain the retirement spending paradox. Many people who successfully accumulate retirement savings have difficulty spending those savings once they stop working. After years of living below their means, investing consistently, and avoiding unnecessary expenses, they struggle to shift from saving to spending. The challenge is both financial and psychological.Ed explains that retirement spending typically changes as people age. The early years, often called the "go go" years, are generally the most active. Retirees have more time to travel, pursue hobbies, visit family, and enjoy experiences they previously put off. During the "slow go" years, activity and discretionary spending often decrease. Eventually, the "no go" years may bring substantially lower spending on travel and entertainment, although healthcare and caregiving expenses can increase. Understanding these phases is important because retirement spending rarely follows a straight line. Money may provide greater enjoyment during the early years, when retirees have the health and energy to use it.Alex identifies two ways a retirement plan can fail. The first is running out of money. The second is reaching the end of retirement with substantial savings but regretting missed opportunities. Financial planning should address both possibilities. A conservative plan accounts for investment returns, inflation, longevity, and market risk. When those factors have been considered, retirees may discover that they can comfortably afford expenditures they previously thought were irresponsible.This creates what Alex calls the permission to spend problem. A retiree might ask whether a $20,000 vacation is affordable even when financial projections show that the expense would have virtually no effect on the plan. The real question is often whether spending that money is acceptable. A financial advisor can help bridge the gap between understanding the numbers and feeling comfortable using the money.Alex also emphasizes the importance of identifying what retirement savings should accomplish. Leaving an inheritance is a worthwhile objective for many families, but accumulating wealth out of fear is different from intentionally building a legacy. Retirees may find greater satisfaction in helping children purchase homes, contributing to grandchildren's education, taking family vacations, or supporting charitable organizations while they can still see the impact of those gifts. Qualified charitable distributions can also provide tax advantages for eligible retirees.Market volatility adds another challenge. Spending can feel comfortable when investment accounts are growing and much more difficult when markets decline. Maintaining appropriate liquidity, choosing a suitable asset allocation, and stress testing a retirement plan can help retirees remain confident through market fluctuations.Ultimately, retirement planning requires balance. Spending beyond a sustainable budget creates financial risk, but excessive caution can prevent retirees from enjoying the life they spent decades preparing for. A well constructed financial plan can help determine when spending is appropriate and give retirees the confidence to use their savings intentionally. You can always email Alex and Ed at info@birchrunfinancial.com or give them a call at 484-395-2190.Or visit them on the web at https://www.birchrunfinancial.com/Alex and Ed's Book: Mastering The Money Mind: https://www.amazon.com/Mastering-Money-Mind-Thinking-Personal/dp/1544530536Any opinions are those of Ed Lambert Alex Cabot, financial advisors, RJFS, and Jon Gay, and not necessarily those of RJFS or Raymond James. The information contained in this report does not purport to be a complete description of the securities, markets, or developments referred to in this material. There is no assurance any of the trends mentioned will continue or forecasts will occur. The information has been obtained from sources considered to be reliable, but Raymond James does not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. The examples throughout this material are for illustrative purposes only. Raymond James does not provide tax or legal services. Please discuss these matters with the appropriate professional. Diversification and asset allocation do not ensure a profit or protect against a loss. Past performance is not indicative of future returns. This information is not intended as a solicitation or an offer to buy or sell any security referred to herein. Future investment performance cannot be guaranteed, investment yields will fluctuate with market conditions There is ...
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