Retirement security and the fear of outliving savings is a significant concern for many older Americans, with 58% of savers and retirees worrying about running out of money, according to research from Cerulli Associates. However, certified financial planner Justin Fitzpatrick believes that retirement spending is not a pass-fail situation. He emphasizes that retirement spending is not static and can be adjusted over time based on individual needs and goals. Fitzpatrick suggests the use of “risk-based guardrails,” predefined guidelines that can help increase or decrease retirement spending depending on various factors such as longevity, future cash flows, and income changes. He argues that total financial ruin in retirement is “almost impossible” because individual liabilities can be small and adjustments can be made gradually.
Transitioning from a steady paycheck during one’s working years to retirement with income uncertainty can be disconcerting and may lead to paralysis. However, Fitzpatrick reassures retirees that they have the flexibility to make small and temporary adjustments in their expenses without facing total financial ruin. Retirement expenses should be seen as a series of small liabilities that can be managed and modified based on one’s financial situation and priorities. While retirees may not necessarily prefer these adjustments ahead of time, they can still avoid financial ruin by making minor adaptations over time.
To manage retirement spending effectively, Fitzpatrick recommends using “risk-based guardrails.” These predefined guidelines allow retirees to ensure their spending remains reasonable and balanced, taking into account factors such as longevity, future cash flows, and changes in income. By regularly monitoring and updating the plan, retirees can rely on their financial advisor to provide guidance on when adjustments to their spending make sense. Fitzpatrick encourages retirees to view their advisor as a spending GPS, offering support and expertise along the way to help maintain financial stability throughout retirement.
