Balancing Fun and Funds in Retirement

A question I am frequently asked by people considering retirement is “How do I balance enjoying my retirement now while making sure that I don’t run out of money?” It is a question that makes a lot of sense because when most people retire, they are relatively healthy, have worked for a long time, and want to enjoy the fruits of working and saving. They want to be able to do the things and see the places that they never had time to because they were working. Plus, they want to enjoy their retirement before they get too old and/or their health or energy levels begin to decline. However, now that a healthy couple (both age 65) have a life expectancy of age 89, retirement could easily last over 25 years1, so it stands to reason that people are also concerned about running out of money. So, what can you do?

There are many different strategies for balancing enjoying your retirement and making sure that you don’t run out of money in retirement. Let’s focus on eight different things that you can consider doing to help yourself enjoy your retirement while balancing that with making sure that you do not run out of money:

  1. Look for deals and discounts. Now that you are retired, you should have more time and flexibility to be able to save money on many things. For example, cruises and hotels often offer last minute specials and discounts. If you enjoy dining out, many restaurants offer specials for weekday or early dining. If you are a movie fan, you have flexibility to go to the movies when the prices are cheaper. You also might save money on airline tickets by taking connecting flights instead of direct flights on your trips.
  2. Prioritize what is really fun and enjoyable for you. Make sure that you budget for those things, and keep them in mind when you are considering spending money on other things. Make sure you are spending your money on what you enjoy most.
  3. Break your living expenses down into two categories, essential and non-essential, and make sure that your lifetime income sources can cover the essentials. Essential living expenses are things like housing costs, health care and insurance, food, utilities, transportation, etc. Non-essential expenses are things like entertainment, travel, hobbies, etc. If your lifetime income sources (social security, pension and annuity payments) can cover your lifetime essential living expenses, it should make it easier to achieve the balance you are looking for.
  4. Reduce your risk of outliving your money by purchasing a lifetime income annuity. If you do not have substantial social security or lifetime pension income, and you are relying on your portfolio to generate the large majority of your retirement income, you might consider investing part of your portfolio into an annuity that pays you an income for your lifetime. This, combined with social security income and any other lifetime pension and annuity payments you will be receiving, will be a hedge against longevity risk and you running out of money.
  5. Consider purchasing Long-Term Care Insurance to defray potentially draining in-home or nursing home costs. While the majority of retirees do not incur significant long-term care or assisted living costs, those costs can significantly drain the retirement savings of retirees who find themselves needing nursing home or assisted living care. The Genworth 2014 Cost of Care Survey estimates the median annual cost of nursing home care (private room) at $87,000 and the median annual cost of assisted living is estimated at $42,000 (Genworth 2014).2
  6. Make sure your portfolio is positioned with enough equities (stocks) to fight inflation and preserve your long term purchasing power. Stocks have long been viewed as an inflation hedge because their returns historically have outpaced inflation by a comfortable margin.3 The portion of your portfolio that is allocated to stocks, will depend on the length of your investment horizon, your tolerance for risk, your investment time horizon, and the other assets in your portfolio.
  7. Be flexible with your spending in years your portfolio is down. Inevitably, the stock markets will go down, and likely, so will your portfolio. To the extent that you can be flexible and reduce your portfolio withdrawal rate by limiting your non-essential expenses in the periods following market declines, you will help preserve the longevity of your investment portfolio.
  8. Work with an experienced financial advisor to develop your plan. What sources of income do you have, and how long do they last? How much do you have saved in your retirement plans, IRAs and other accounts? An experienced advisor can assess your income needs as well as your income sources and assets and use Monte Carlo simulation techniques to consider the impact of a variety of possible portfolio return scenarios, good and bad. With this analysis, they can then devise an action plan and provide you with the amount that you should be able to withdraw to provide a safe level of spending throughout retirement.

While the eight items above are not the only things that you can do to help you balance enjoying your retirement while making sure that you do not run out of money, they will go a long way to helping you have a happy and secure retirement. Please let us know if there is any way that Atlanta Financial can help you plan for your successful retirement.


1. Kitces, Life Expectancy Assumptions is Retirement Plans-Singles, Couples, and Survivors
a. March 19, 2014 www.kitces.com
2. The Impact of Long-Term Care Costs on Retirement Wealth Needs by Vickie Bajtelsmit and Anna Rappaport, distributed by the Society of Actuaries 2014
3. www.wsj.com Hedging Against Inflation-Successful Strategies by Randy Myers