After years of saving, will you be ready to spend?

Published 8:13 am Friday, May 25, 2012

In financial terms, retirement day might be the single most important day of your life. Few other moments are as painstakingly planned for or as eagerly anticipated. You’ve probably already spent years preparing for the day you’ll retire — saving and strategizing so that when it finally arrives you’ll be ready to enjoy the fruits of a successful career.

But how often, during all your hard work and preparation, have you thought about the other side of retirement? The side where wisely spending replaces saving as your primary goal? The side where you’ll need to balance maintaining your lifestyle with preserving your funds. The side where accumulation gives way to its counterpart, “decumulation” — the distribution of your retirement savings.

Here is a brief look at that other side of retirement — how your priorities will change in the days after one of the most important days of your life, and how cash and managing it well will become vital.

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Savings to spending

Spending might seem like the easy part, but in retirement, spending takes on new significance. You’ll be working with finite resources, ones that you’ll need to use sensibly and strategically in order to reach your goals — from taking dream vacations to buying a vacation home — without exhausting the funds you’ll need to sustain yourself long term.

Even after you’ve officially retired, you’ll still need a steady paycheck. And with no employer or business to supply it, delivering consistent income is up to you. So in addition to using your savings for big-ticket items, you’ll also be using it to cover day-to-day needs and unexpected expenses. Creating and maintaining a steady flow of cash, and budgeting to determine how much you’ll need each month, is key.

Well, before you retire, you’ll want to begin mapping out your retirement spending — or “decumulation” — strategy. Through this process, you’ll consider your long-term needs in relation to your retirement goals, project how much you’ll need to enjoy the lifestyle you want, and develop a plan for converting your investments (by way of bonds, certificates of deposit, money market accounts, etc.) into the cash you’ll use to fund that lifestyle. This will also be an opportunity to determine whether your expectations are reasonable, what concessions you might be willing to make, or how you can restructure your saving efforts for maximum impact.

Making the most of other resources

As important as your savings will be in funding your retirement, your 401(k) or other employer-sponsored account won’t be the only resources you’ll have. Your cash flow can be supplemented by things like pensions, individual retirement accounts (IRAs), the sale of a home, inheritance and, of course, Social Security.

While today’s Social Security retirement benefit certainly can’t be relied on to cover all — or perhaps even most — of your expenses in retirement, it remains a valuable source of income. And there are ways to maximize it.

First, you’ll want to ensure you’re getting the maximum payment. For instance, you may be able to claim a deceased or former spouse’s benefit if it is higher than your own (Work with your advisor to explore the rules and your options.).

You can also take advantage of direct deposit — having your Social Security benefit deposited into a checking account or even into an interest-bearing account. This option offers you greater security than you’d have with paper checks and, in most cases, incurs no additional fees.

Coordinating it all

In addition to maximizing each of your resources separately, you’ll also want to consider them as parts of a larger whole — to see where one could be used more effectively and another might provide extra cushion.

To help you do this, you might consider consolidating your cash and checking accounts into a single cash management account through your bank or through your financial advisor. This can allow you and your professional team to keep track of all your financial moving parts in one place, and can enable you to more easily manage your cash flow, better preserve your funds and simplify your financial life.

However near or far off retirement might be for you, remember that it has two sides — and that how well you spend can be just as important as how well you save.

To learn more about how to develop a retirement spending plan and to effectively manage your cash in retirement, be sure to talk to your financial advisor.

This material was prepared by Raymond James for use by its advisors. The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete.

Stephen P. Poitevint is a Registered Principal and Financial Advisor with the firm of Raymond James Financial Services, Inc., member FINRA/SIPC, and is located at 908 Tallahassee Highway, Bainbridge, and can be contacted at (229) 246-7208 or