On Memorial Day weekend I joined my daughter in running the Buffalo Marathon. No, I didn’t run the 26 miles—they offer a half-marathon (13.2 miles) for those of us not quite up to the full. I started the race with a goal of finishing in two hours and 10 minutes (about the median for runners in my age bracket), and wound up beating that goal by four minutes. I also came in only six minutes behind my daughter, which surprised me since she is a much more accomplished (and younger) runner.
I am by no means a seasoned long-distance runner. This was only my second half-marathon, and only the third time I have ever run 10 miles or more—even in practice. So I am learning as I go. One thing I learned this time around is how important it is to maintain a steady and even pace in running. I used a running app on my phone that provided feedback every two minutes or so regarding my current pace. Once I found a pace I thought I could keep up for two hours, I diligently stuck to that pace. It worked quite well for me.
Keeping a Steady Pace With Retirement Distributions
An analogy could be made for retirement planning. Rather than taking money “as needed” from retirement accounts, set up a fixed distribution that can be sustained over a lifetime (with regular increases for inflation). In fact, creating a distribution and spending plan for retirement is one of the important benefits of financial planning for people who are entering (or recently entered) retirement.
Distributing assets at a steady pace helps ensure you will be able to finish the race without excessive pain. But sometimes the unforeseen forces you to change your plans. For instance, in the Buffalo race we ran along the lakeshore for a couple of miles. Had we faced a strong head wind (not uncommon in Buffalo), I may have been forced to slow my pace or risk depleting my energy reserves. Likewise, if you encounter a period of sub-par investment returns or high and unexpected expenses that depleted assets faster than anticipated, it might be important to slow down the rate of spending and distributions. The reverse holds true as well. Perhaps the wind has been behind you—it is reasonable to free up a little extra money if assets are growing and expenses have been below projections. (For related reading, see: Asset Distributions a Key Consideration for Retirees.)
Living on a set distribution should be familiar territory for most people. After all, most people have lived on a fixed salary for most of their lives. During that period, they paid a mortgage, went on vacation, put the kids through college, remodeled their kitchen and so on. All this on a fixed and regular income. No one goes to their boss and says “I need an extra $10,000 because I'm running a little short this month.”
Retirement Assets Are Readily Available
In retirement, however, you do have the option to give yourself a “raise” or “bonus.” Retirement assets and savings are there for the spending, and tapping those resources for an extra vacation or home remodel can often be tempting. However, when a client frequently needs “special, one-time” distributions in excess of a carefully planned, sustainable withdrawal rate, we start to worry. It can be an indication that the client’s lifestyle may be too expensive to support with the given levels of retirement income and assets. The risk that the client will run out of money may start to increase.
This helps illustrate why having a plan for retirement is important and updating it on a regular basis is important as well. If you haven’t created your financial plan, or haven’t updated it in some time, call a financial planner. Whether you are in retirement, contemplating retirement or still accumulating assets, they can help by being the “pacesetter” keeping you on track through the duration of your race.
(For related reading, see: Managing Income During Retirement.)