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By Donna Rosato
July 28, 2015
Jason Schneider

You’ve saved up money your whole career. So in retirement, don’t deny yourself the pleasure of spending it.

Not a problem, you think? Actually, it can be. In 2014, 28% of people 65 and older with at least $100,000 in savings pulled less than 1% from their accounts, reports the research firm Hearts & Wallets. That’s well below the 4% that many financial planners say is safe.

Misgivings about spending play a big role, says Hearts & Wallets partner Laura Varas. In focus groups, retirees described big spenders their age as irresponsible and expressed shame about their own spending. And as people age, they tend to get more emotional about complex money decisions, says Christopher Browning, a financial planning professor at Texas Tech University: “No one gives you instructions on how to turn your savings into income. It can be a paralyzing process.”

First determine if a shortage of money is the problem rather than an inability to spend. The tool at troweprice.com/ric can help you figure out whether you indeed have enough funds for a good retirement. Then, if it’s worry that’s stifling your spending, try these steps to put yourself at ease.

Make Your Own Pension

Living off a steady income stream, not portfolio withdrawals, can boost your confidence about spending. A Towers Watson survey found that retirees relying on pension or rental income are less anxious than those who live off investments. Don’t have a pension and don’t want to be a landlord? You can create regular income by buying an immediate fixed annuity. A 65-year-old man who puts $100,000 into one today, for example, would collect about $500 a month for a lifetime.

Add up your monthly fixed costs, such as a mortgage and health insurance. If that amount exceeds your Social Security and any other guaranteed income, fill that gap with an annuity. (Get quotes at ImmediateAnnuities.com.) Granted, if you’re hesitant to spend money, you may be hesitant to lock up funds in an annuity. If so, annuitize a fraction of your money and add more once you’re more comfortable with the idea.

Bucket Your Money

Should you not want to tie up any money in an annuity, you can get comfortable about spending by dividing your portfolio into accounts for different needs. Browning suggests sorting your savings into three buckets. One provides income for everyday expenses over the next few years, the second is for fun pursuits, and the third is for future needs: day-to-day living, emergencies, and bequests.

Put the first two buckets in secure and liquid investments: money-market accounts, CDs, or high-quality bonds. The bucket for later years can have stock holdings for greater long-term growth.

Once that’s done, you can start collecting income—a paycheck for retirement. Set up a regular transfer from a money-market account that’s in your first bucket—enough to cover, with Social Security, monthly bills and usual expenses. Then relax and enjoy.

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Advertiser Disclosure

The purpose of this disclosure is to explain how we make money without charging you for our content.

Our mission is to help people at any stage of life make smart financial decisions through research, reporting, reviews, recommendations, and tools.

Earning your trust is essential to our success, and we believe transparency is critical to creating that trust. To that end, you should know that many or all of the companies featured here are partners who advertise with us.

Our content is free because our partners pay us a referral fee if you click on links or call any of the phone numbers on our site. If you choose to interact with the content on our site, we will likely receive compensation. If you don't, we will not be compensated. Ultimately the choice is yours.

Opinions are our own and our editors and staff writers are instructed to maintain editorial integrity, but compensation along with in-depth research will determine where, how, and in what order they appear on the page.

To find out more about our editorial process and how we make money, click here.

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