The New Rules of Retirement

Chapter 4Tapping Your Nest Egg

The missing link in many retirement plans is the withdrawal, distribution, or spending strategy. For a retirement plan to be successful, you need a strategy for drawing down your nest egg. Saving and investing on the way to retirement are important steps. Once you're ready to spend for retirement, you should have a distribution strategy. Your plan must ensure that you spend the nest egg at a rate that is sustainable. You don't want to run out of money. The spending strategy we discuss in this chapter must be coordinated with your estimated spending discussed in Chapter 2. If there's a gap between your spending strategy and the estimated spending, then the estimated spending should be reduced.

Accumulating money for retirement isn't the hardest part, though it's far from easy. Developing a spending strategy is more difficult. Many people enter retirement with what seem to be adequate resources. Yet, recent studies concluded that a high percentage of Americans die owning their home equity and little more. Many retirees end up relying heavily on Social Security to fund their later years' spending.

Some of this shortfall is due to unexpected spending, especially medical and long-term care expenses, and not having insurance or a plan to help with those expenses. Most often, however, the shortfall is due to people entering retirement without a spending plan or with a poorly conceived plan. For example, as we discuss shortly, many financial planners believe ...