5 retirement spending lies almost all American retirees believe — how many are hurting you in 2024?

1. You need to spend less during the early stages of retirement

You’ll often hear that if you’re not careful with your spending during the early stages of retirement, you risk running out of money later on. But if you spend too conservatively during your early retirement years, you could miss out on experiences you’ll never get back.

It’s not a given that your health will decline steadily throughout retirement. But it’s also pretty fair to say that if you retire at age 65, you may be better equipped to do things like travel than in your mid-70s or 80s. For this reason, it pays to take care of your health, even if that means spending a bit more early on in retirement and scaling back later.

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2. You need to stick to the 4% rule

For years, financial professionals have pointed to the 4% rule in the context of retirement spending. It states that if you withdraw 4% of your nest egg your first year of retirement and adjust future withdrawals for inflation, your savings should last you for a 30-year retirement.

But there are problems with the 4% rule you should know about. First, it assumes that your retirement portfolio has a fairly even split between stocks and bonds. If you’re more heavily invested in stocks, your gains might support a higher withdrawal rate. If you’re mostly invested in bonds, you may not generate enough ongoing income to support a 4% withdrawal rate each year.

The rule also assumes that your retirement expenses will mostly remain steady from one year to the next, which is often unrealistic.

It's worth noting that William Bengen, who devised the 4% rule in 1994, has adjusted that rate over the years. In 2021, he favored a 4.7% withdrawal rate. He then adjusted that downward to 4.4% or 4.5% in 2022.

3. You need to stick to the same withdrawal rate throughout retirement

Establishing a baseline withdrawal rate for your retirement savings is not a bad idea. But you shouldn’t assume that you have to stick to the exact same rate (or the exact same rate adjusted for inflation) from year to year.

There may be a year when you can take the trip of a lifetime with close friends or family. There could also be a year when your roof needs to be replaced or you make a large down payment on a new car. Building some flexibility into your retirement spending plan can make room for these fluctuations, which is why it often pays to work with a financial advisor.

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4. You don't need to worry about your spending if you retire late

According to Gallup, the average U.S. retirement age is 61 as of 2022. But if you’re retiring much later, say 66 (the average target retirement age for nonretirees) or older, you might assume that you’ll be able to spend your savings freely without worrying about how much of your balance you’re eating through each year.

Life expectancies have a way of surprising people, though. So for this reason, it still pays to put thought into your spending and work with a financial advisor to create a withdrawal rate that makes sense now and in the future.

Of course, that rate can be fluid, and year-to-year adjustments can be made. But you should still have a plan.

5. You should expect to increase your spending every year

One big assumption you might make while managing your nest egg is that your costs will rise every year in retirement due to inflation. But inflation may not rise yearly, so you shouldn't automatically increase your spending if there's no need to.

Instead, pay attention to what essentials cost and take advantage of years when you don’t need to spend as much to cover your basic needs. That buys you more wiggle room to spend more in future years, or to allocate money toward one-off expenses that enhance your quality of life, like home modifications that make your house easier to navigate.

While following a baseline blueprint is certainly helpful, your financial plan can answer to your unique life events as they unfold — and not the other way around.