By Joel Dresang
Folks talk as if the biggest change in retirement will be finding what I do with my time. To me, though, the bigger question is how we’re going to pay for everything.
As long as we’ve been working, our paychecks have flowed right into our credit union accounts. The money there covered what we needed for our mortgage, utilities, insurance, taxes, food, entertainment and so on. But when we stop working, so will our paychecks.
That’s when we’ll have to rely on Social Security and the little pensions we expect. And that’s when we’ll be glad to have retirement investments to tap into.
For decades, we’ve been socking away what’s left from our paychecks and investing for long-term growth. When we retire, though, we’ll be withdrawing from those savings to fill the void of our paychecks.
How to do that is something we’ll have to work out with our advisor. It also might require shifting how our investments are allocated so we can readily get cash when we need it – and, of course, so the money doesn’t run out before we do.
Put another way, after years and years of accumulating assets, we’re about to begin years and years of drawing them down.
While there’s all sorts of advice on how to stockpile retirement money, there’s not as much on how to spend it.
Learn more
Deciding which retirement accounts to tap, a Money Talk Video with Dave Sandstrom
Retirement spending with heirs in mind, a Money Talk Video with Dave Sandstrom
When should I …take my required minimum distribution?
FAQs about RMDs, from the IRS
Selecting Retirement Payout Methods, from the Financial Industry Regulatory Authority
I tried a tool that aims at helping individuals and couples assess their risk tolerance and spending priorities in retirement. It’s called the Retirement Income Style Awareness. (RISA is the Spanish word for “smile.”)
I learned about RISA in Christine Benz’s guidebook “How to Retire.” Essentially, it uses survey responses to locate a retiree’s leanings across two spectra:
- Taking risks vs. staying safe
- Tolerating uncertainty vs. knowing how much you’ll have to spend
Through an online questionnaire (which took me 26 minutes to complete), RISA tries to establish where a retiree fits across those ranges and then further places them into different categories that could assist in recommending how to invest for retirement.
Generally, investing in stocks – and doing nothing else – would better suit someone who embraces the rewards and risks of volatility. The alternative would be to put everything into an insured investment vehicle that would lock in predictable returns – paying someone else to take the risks.
As you can imagine, the recommendations would cluster somewhere between the extremes and vary by individual, depending on such factors as how much the retiree prioritizes spending all their money or leaving an inheritance. Likewise, investment strategies would differ by how much the retiree prefers to enjoy their money at the beginning of retirement as opposed to squirreling it away for expected medical costs down the road.
My answers were somewhere down the middle. I’m willing to take risks, but I still value safety. I’d like to have some options about what’s done with our investments over retirement, but I’d sleep easier knowing I can count on at least certain amounts.
The 20-page report (including eight pages of disclaimers) generated from my questionnaire refers to my scores as “moderate.” It calls me a “collaborator” who feels it’s very useful working with a financial professional. The report says I have a “high self-efficacy,” reflecting confidence I have based on having at least some familiarity around these issues.
The questionnaire and analysis costs about $30, but I got a free code through the “How to Retire” book. I found at least one other publication providing free access, too.
Of course, nothing’s for nothing. For the free evaluation, I’m receiving frequent email invitations to enroll in online classes and professional consulting and a monthly subscription to help guide my retirement money.
The classes and consultations don’t seem useful to me, but some retirement seekers might find them worth the investment. I plan to monitor the solicitations awhile before I direct them to spam.
I also plan to share the report with my advisor. I’m not sure what insight it might add to our strategies, but I’m hoping it’s helpful to have more information about how I’m viewing retirement income. I’ll get my wife to take the survey too.
It seems to me the key word in RISA is Awareness. Just taking the survey stimulated my thinking about how to replace our paychecks in retirement. Now that we’ll be living off our investments rather than building on them, it’ll be nice to consider how they’ll work for us.
Joel Dresang is vice president-communications at Landaas & Company, LLC.