A recent study by the Americans for Secure Retirement foudn that 3 out of 5 middle-class Americans will outlive their retirement savings because they will fail to reduce their expenses in retirement. It’s a scary study but it makes sense, people think they will spend less in retirement but often don’t. You might pay less in taxes, less in work related travel, but you go on more vacations and spend money on new leisure activities that you didn’t have time for.
How do you prevent this? First, create a budget and stick to it. The rule of thumb is always to spend only 4% of your retirement savings each year. If you have a million dollars squirreled away, that’s $40,000 a year. Another rule of thumb works in the reverse and focuses on spending. You should estimate that your expenses in retirement will be about 70-90% that of your pre-retirement spending and save accordingly. This also means that when you do retire, you must spend only the amount you budgeted for in the first place!
Most Americans will outlive savings. [Marketplace]