Retirement income: Spending your savings
Congratulations! You've worked hard to get to this exciting new stage. Here's how to make the most of your nest egg.
See how you could benefit from expert advice
This is the most critical phase of your retirement savings journey—and potentially the most time-consuming.
Even if you've been investing solo for decades, think about whether you might benefit from a personal advisor. We can partner with you to make your savings last, keep your taxes low, and plan for the future.
Living in retirement: How much do you know?
There are a lot of misconceptions around how your financial life may (or may not) change once you retire. Get the facts behind these myths.
Myth: When you retire, you should move most of your savings into bonds.
The facts: A diversified portfolio is as important now as it was while you were saving, and for the same reason—it lowers your overall risk.
Myth: You should only spend from your portfolio's income—never from principal.
The facts: Moving your investments into income-producing stocks and bonds just so you can meet this "requirement" has several drawbacks.
Learn more about investing in retirement
Myth: Your portfolio should change when you retire.
The facts: The day you retire doesn't necessarily call for massive shifts in your portfolio's asset mix. If you've been moving to a more conservative mix for the past decade or so, you may not need to make any changes.
Myth: Only the wealthy need estate plans.
The facts: Anyone who has loved ones to worry about should have an estate plan. Consider directives like a power of attorney and living will as well.
Find out more about estate planning
Myth: Your retirement will be a lot like your parents'.
The facts: Life expectancies have continued to increase. Unless you're experiencing declining health or have a family history of shortened life spans, medical advances make it likely that you're going to spend many years in retirement. For most people, 30 to 40 years is a reasonable estimate.
And that's not the only thing that's changed since your parents retired. The declining prevalence of traditional pensions means it's likely your savings will need to cover a greater portion of your expenses in retirement.
Myth: You'll have to start withdrawing all your money once you stop working.
The facts: When you turn age 73*, the IRS will require you to begin taking withdrawals from certain types of retirement accounts (in most cases, it doesn't matter when you actually retire). Calculating these required minimum distributions (RMDs) can be tricky, but we can help.
*Due to changes to federal law that took effect on January 1, 2023, the age at which you must begin taking RMDs differs depending on when you were born. If you reached age 72 on or before December 31, 2022, you were already required to take your RMD and must continue satisfying that requirement. However, if you had not yet reached age 72 by December 31, 2022, you must take your first RMD from your traditional IRA by April 1 of the year after you reached age 73.
See how RMDs should fit into your retirement withdrawals
The way your account is divided among different asset classes, including stock, bond, and short-term or "cash" investments.
Usually refers to investment risk, which is a measure of how likely it is that you could lose money in an investment. However, there are other types of risk when it comes to investing.
The interest and dividends generated by an investment.
A complete view of all the money in your account—i.e., not specific investments.
Required minimum distributions (RMDs)
Annual withdrawals required by the IRS from certain retirement accounts, beginning at age 72 (age 70½ if you attained age 70½ before 2020). RMDs are intended to ensure that the assets in these types of accounts are eventually subject to taxation.
The strategy of investing in multiple asset classes and among many securities in an attempt to lower overall investment risk.
A conservative portfolio is relatively safe from investment risk (although there's no guarantee it won't lose money). Because risk and reward are related, a conservative investor can also expect returns that are, on average and over time, lower than those of someone with a moderate or aggressive portfolio.
Get your finances in order
If you want to handle your retirement income planning yourself, here are the things you'll need to do.
1. Figure out your expenses
While many of your expenses will stay the same once you retire, you may have some new items in your budget, like Medigap or long-term care insurance, increased travel expenses, or costs for new hobbies.
And don't forget that some of your expenses might actually drop or disappear, like payroll taxes, clothes and gas for work and, of course, the money you budgeted for your retirement savings.
Calculate your expenses in retirement
2. Figure out your income
Now's the time to tally up exactly what you'll have coming from Social Security, pensions, and any part-time work or rental income you might be expecting.
Calculate your income in retirement
3. Withdraw from savings to bridge the gap between income & expenses
Unless you're particularly frugal, you'll probably use your savings as a supplement to meet your spending needs in retirement. Learn about the pros and cons of several retirement strategies.
All investing is subject to risk, including the possible loss of the money you invest. Diversification does not ensure a profit or protect against a loss. Investments in bonds are subject to interest rate, credit, and inflation risk.
Advice services are provided by Vanguard Advisers, Inc., a registered investment advisor, or by Vanguard National Trust Company, a federally chartered, limited-purpose trust company.