Want Reliable Retirement Income? Use the Spend Safely in Retirement Strategy

One of the biggest fears you probably have about retirement is whether your money will last as long as you do. It is likely that you are also asking: How much can I spend? How much do I need? How much do I actually have? There are so many questions.

Good news: the Stanford Center on Longevity, in collaboration with the Society of Actuaries (SOA) has some answers. They analyzed 292 retirement income strategies and are recommending the “spend safely in retirement strategy” as the best way to spend in retirement.

Want to explore other options? Check out 18 other retirement income strategies.

How the Spend Safely in Retirement Strategy Can Help You Have a More Secure Retirement

The lead Stanford researchers, Steve Vernon, Wade Pfau, and Joe Tomlinson, wanted to figure out which retirement income strategy gave the highest number of retirees the biggest amount of income possible that would last their lifetimes.

They also wanted a retirement income system that:

• Almost anyone could actually implement on their own, without the help of a financial advisor
• Reduces the risk of volatility
• Could keep pace with inflation
• Limits the possibility of failure (falling short)

What is the Spend Safely in Retirement Strategy?

The spend safely in retirement strategy is designed to help middle-income workers and retirees decide when to retire, how much to spend in retirement, and how to best deploy their financial resources.

The main goal of the strategy is to help you turn your assets – Social Security, the ability to work, savings, and home equity – into the most retirement income possible.

Why Should You Trust This Retirement Income Idea?

You have probably read about hundreds of different retirement income strategies. Why is this one different?

Well, to start, this concept is being proposed by some really smart guys who have done unbelievable amounts of detailed research and calculations to make this recommendation. Not only are these professionals smart, but they also are applying expertise not always used in retirement planning.

As the Spend Safely in retirement report says: “Professionals with expertise in investing tend to favor investing solutions that generate retirement income, while professionals with expertise in insurance products tend to favor annuities.

Both types of professionals might not consider or advise their clients regarding other financial resources such as home equity and reverse mortgages.”The spend safely in retirement is a more holistic approach.

5 Components of the Spend Safely in Retirement Strategy

There are basically 5 parts to the Spend Safely in retirement strategy:

1. Delay Social Security

Maximizing the value of this benefit means waiting to start until at least your full retirement date. The longer you wait to start Social Security, the greater your monthly benefit will be. Use the Social Security Explorer (part of the Boldin Retirement Planner) to figure out an optimal age for you to start benefits.

And, if you are married, learn about the smartest Social Security decision you can make.

Vernon writes, “Social Security benefits are a near-perfect retirement income generator, protecting you against several risks: living a long time, inflation, stock market crashes, and cognitive decline. It only makes sense to maximize the value of this essential benefit.”

2. Plan Your Withdrawals from Savings

The Stanford researchers recommend that your retirement savings be invested in low-cost mutual funds, target date funds, or index funds.

And then, use the required minimum distribution (RMD) formula to determine your annual withdrawals from these savings. (And don’t make earlier withdrawals. But, if you do, keep it to 3.5% of the value of your accounts.)

Until recently, RMDs began at age 72. (Due to the omnibus spending bill and SECURE Act 2.0, the RMD age has been raised to 73 in 2023 and 75 in 2033.) You are required to withdraw a percentage of your savings at the appropriate age, and the percentage will increase each year.

3. Get Detailed with Projected Expenses

Now comes the hard part. You need to see if the income from the above sources – as well as a pension if you are lucky enough to have one – is adequate to cover all of your projected expenses.

The more accurate you can be with projecting your expenses, the more reliable your plan will be. (The Boldin Retirement Planner enables you to set spending in over 70 different categories and vary  your expenditures over time.)

4. Explore Other Sources of Income to Fill Shortfalls

Once you determine how much income you can get by maxing Social Security, any pensions you might have, and modest yearly withdrawals from savings, and have compared that to your projected expenses, you can now start to work out how to fill in any shortfalls.

The spend safely in retirement strategy recommends you consider delaying retirement, reducing expenses, getting a retirement job, and/or tapping your home equity to fill in the gaps.

5. Explore More Sophisticated Withdrawal Strategies if You Have a Lot of Savings

If you have sizable savings, you may prefer something more sophisticated with your assets: annuities, a bucket approach, varying your withdrawal amounts based on investment returns (applying floors and guardrails), setting up a bond ladder, or establishing a more sophisticated allocation for your assets.

Model the Spend Safely Strategy, With Your Own Data

This strategy sounds pretty straightforward. But is it for you? Try it out with your own data.

You can discuss the spend safely in retirement strategy with a financial advisor, or you can try out the strategy yourself using the Boldin Planner:

• Begin by entering where you stand right now – your savings, when you would like to retire, etc.
• Then, try the Spend Safely in retirement strategy for your Social Security and savings. (The Boldin system actually automatically calculates and applies your RMDs. If these withdrawals are not being used to cover monthly expenses, then they will be added to your “other savings.”
• With each change you make to your existing data, you will be able to see exactly how your cash flow, out of savings age, estate value, and potential for debt is impacted.

Get Professional Support for Implementing a Spend Safely in Retirement Strategy

Retirement income planning is the main reason people seek the guidance of a personal finance professional. Turning your assets into adequate lifetime income is key to your retirement success.

Did you know that Boldin has an advisory service? Collaborate with a fee-only fiduciary Certified Financial Planner (CFP)® to develop a retirement income plan that meets your goals and is thoroughly vetted by a approved by a professional. Book a free discovery session.