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A lack of flexibility: Many income planning models assume your retirement spending will increase each year to keep pace with inflation, regardless of investment performance. Much like the widely-known four percent withdrawal rule, these models are static in nature and don’t incorporate variability, or the extent to which you may be comfortable adjusting your spending.
The reality of retiree spending: Based on a 2021 survey of 1,500 defined contribution retirement plan participants, many were willing to cut back in categories such as transportation, utilities, clothing and food. Furthermore, when these participants were asked if a 20 percent spending drop would affect their retirement lifestyle, 45 percent said it would require changes, but they would be able to accommodate it.
Your retirement spending might be more flexible than what financial planning tools claim it could be, and that should be reflected in your overall income strategy. Keep in mind, your spending habits will change over time too, and potentially, could even decline.