Many Americans spend decades saving for retirement but struggle with the transition from building wealth to creating sustainable income. Financial experts say retirees need to shift their mindset from saving money to strategically spending it throughout retirement.
The Challenge of Moving From Saver to Spender
Garrett Harbron, head of advised wealth management strategies at Vanguard, said many retirees find the transition difficult because they have spent most of their working years focused on saving.
“For 40 years of our lives, we’re savers, and we’re told save, save, save,” Harbron said. “While saving feels very familiar to us, spending is really kind of unknown territory.”
Vanguard’s retirement income research focuses on helping investors move beyond simply tracking account balances and instead create sustainable spending strategies that support their retirement goals.
A Framework for Retirement Income Planning
Vanguard’s research outlines four key principles for creating a retirement income strategy:
- Start with purpose
- Cover the essentials
- Make your wealth last
- Simplify
Harbron recommends retirees begin by separating their expenses into three categories: needs, wants, and wishes.
Needs include essential costs such as housing, food, and healthcare. Wants cover discretionary lifestyle expenses, while wishes include longer-term goals such as leaving an inheritance or providing financial support to family members.
Building Reliable Retirement Income
The research recommends covering essential expenses with reliable income sources, including Social Security, pensions, or certain annuity products.
According to Vanguard, dependable income streams can help retirees manage major financial risks, including market volatility, inflation, and the possibility of outliving their savings.
The Risk of Spending Too Little
While many retirees fear running out of money, Harbron said being overly cautious can also create challenges.
Some retirees reduce their spending more than necessary because they are uncertain about how much they can safely withdraw from their savings.
“A lot of people, because they don’t know how to plan for their retirement spending or what a reasonable spending rate looks like, they get conservative,” Harbron said.
Vanguard’s research suggests retirement success depends not only on how much someone saves, but also on how effectively they manage withdrawals during retirement.
Planning Before Retirement Begins
Harbron recommends beginning retirement income planning five to 10 years before leaving the workforce.
He also suggests reviewing financial plans annually and after major life changes that could affect retirement goals or financial needs.
The goal, Harbron said, is to help retirees feel confident that they can maintain their desired lifestyle while avoiding the risk of exhausting their savings.
