Do you have a plan for how you’ll spend your money in retirement? If not, join the club. Many retirees wing it when it comes to withdrawing their hard-earned savings.
But that’s a big mistake, says Jean Chatzky, best-selling author of “The Forever Paycheck” and founder of HerMoney. In fact, it’s the biggest mistake retirees can make.
“The lack of a concrete plan actually prevents them from living their best retirement,” Chatzky tells Kiplinger. “They are not living as well as they could.” If you overspend without a plan, you could face a retirement shortfall. If you underspend, you won’t get to fulfill your retirement goals.
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(Image credit: Jean Chatzky)
Reluctance to spend among retirees
Underspending is a common problem among retirees, despite large nest eggs built on a decade-long bull market. By the end of 2024, Fidelity Investments reported that baby boomers made up 41% of all 401(k) millionaires, while Generation X (ages 45 to 60) accounted for 57%.
Yet, despite healthy balances, many are wary of spending. A recent Corebridge Financial survey revealed that less than one-third of retirees feel comfortable spending their savings, with most noting that the prospect causes stress or anxiety. While Chatzky emphasizes that a detailed strategy can alleviate many of those feelings, just 14% of retirees report having a plan to manage their Required Minimum Distributions.
“There are a number of decumulation strategies, but I’m a believer that covering your fixed costs with some sort of paycheck, some sort of guaranteed income, is likely to enable people to live better, with less stress,” Chatzky says.
That doesn’t mean all your money should be in a guaranteed investment product such as an annuity, bonds, or Treasuries, but locking some of it in a “forever paycheck is really a smart move for most people,” she says.
Pre-retirees need a plan too
If you are a pre-retiree, Chatzky says the biggest mistake you can make in the run-up to retirement is not having a plan. Do you want to downsize or age in place? Will you earn money or are you completely exiting the workforce? What about your spouse? Is he or she retiring with you? How do you plan to spend your free time? You need answers to all that and more ahead of time if you want a successful retirement, says Chatzky.
“I’m always baffled by the number of couples who have very, very different retirement visions from one another,” says Chatzky. “They get to the point and realize they are not on the same page at all.” Just like buying a house or having a baby, you can’t plan out your withdrawals until you know what your lifestyle looks like and how much it will cost.
(Image credit: Jean Chatzky)
Help is out there
When it comes to planning, Chatzky encourages everyone to consider hiring a financial adviser. A financial planner can map out a plan for how to spend your money in retirement or determine how much you need to save.
Chatzky said that while some people think hiring a financial planner means paying fees forever, or think they don’t have enough money to need one, both notions are dated and wrong.
You can hire a financial adviser to create a plan you execute yourself, you can hire a planner to review a plan you created, or have someone do it all for you, says Chatzky. “The whole financial planning field has become democratized in a way that I truly think there are planning services available to fit everyone,” she says.
Editor’s note: This article is part of an ongoing series in which we ask influential personal finance figures to share their opinion on the biggest retirement mistake you can make. Other articles feature Suze Orman, Dave Ramsey, Grant Cardone and Ramit Sethi.