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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.

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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.

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.

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 72 (age 70½ if you attained age 70½ before 2020), 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.

The CARES Act provides a temporary waiver of RMDs for 2020 including any delayed 2019 RMD (if the 2019 RMD wasn't taken before January 1, 2020). If you would have had an RMD obligation for 2020, you do not have to take your RMD for 2020 (or delayed 2019 RMD) if you don't want to.

If you have already taken a withdrawal in 2020 that would have been an RMD (had RMDs not been waived), you may be eligible to roll the money over. All or a portion of a distribution already taken in 2020 (that would have represented an RMD, had RMDs not been waived) may be rolled over back into an IRA by August 31, 2020. Rollovers of RMDs taken in 2020 don't count toward the IRA one-rollover-per-365-days rule.

New guidance permits RMDs taken in 2020 from inherited IRAs to be rolled back into the inherited IRA the distribution came from, by August 31, 2020.

For more information about the rollover rules, go to or consult a tax advisor.

Get your finances in order

If you want to handle your retirement income planning yourself, here are the things you'll need to do.

Step 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.

Step 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.

Step 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.

Get more from Vanguard. Call 800-523-9447 to speak with an investment professional.

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The strategy of investing in multiple asset classes and among many securities in an attempt to lower overall investment risk.

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A complete view of all the money in your account—i.e., not specific investments.

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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.

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The interest and dividends generated by an investment.

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Asset mix

The way your account is divided among different asset classes, including stock, bond, and short-term or "cash" investments.

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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.

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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 CARES Act provides a temporary waiver of RMDs for 2020. If you've reached RMD age, you do not have to take your RMD for 2020 if you don't want to.