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The biggest financial danger in retirement isn’t always the stock market. It is the constant and persistent fear of running out of money. This anxiety keeps many people from spending and worrying, even when their finances are healthy.
Here are eight ways to replace that worry with lasting security.
1. Determine your spending baseline
Worry often begins with the vague question, “Am I spending too much?”
Instead of operating on gut feeling, work with a counselor to determine your staff sustainable withdrawal rate (often between 3% and 5%). Once you know your lifestyle is covered by a responsible withdrawal rate, you can stop guessing and start living with confidence.
2. Make adjustments as needed
Many retirees treat their spending plan as an all-or-nothing system. This rigidity creates panic during market downturns.
Instead, adopt a dynamic spending strategy. Reduce or slightly delay discretionary spending in lean market years. By reducing your withdrawal rate by just 10% when your portfolio is low, you dramatically reduce the risk of permanent capital depletion, allowing assets to recover.
3. Realize that your spending will naturally decrease
The high level of discretionary spending you need at age 65 probably won’t be the same at age 85, especially once you have long-term care coverage (see #7).
Expenses for travel, hobbies, eating out, and maintaining multiple homes tend to decrease as you age. Knowing that your main risk (long-term care) is insured, you can trust that your remaining costs will naturally decrease over the next two decades. Your money works harder when you’re younger and have more fun, and your needs will shrink as your capital naturally shrinks.
4. Create a recession buffer (the “anti-panic” fund)
The biggest tactical threat to longevity is experiencing a major market downturn before retirement and having to sell depressed assets to pay for essentials like groceries. To protect you,
maintain a cash cushion of six to 12 months off the market.
This “recession buffer” allows your growth assets (stocks) to stay intact and recover during a market downturn, preventing you from locking in losses. This separation between your live money and your long-term growth money is the most direct way to eliminate panic during volatility.
5. Buy the risk of surprise taxes
Unknown future tax rates and large minimum distributions required from traditional retirement accounts are a significant source of financial uncertainty.
what can you do Eliminate tax uncertainty by creating a tax-free bucket.
