Figure out when you should stop saving and start spending in retirement.

Figure out when you should stop saving and start spending in retirement.

How does one decide on the right time to stop saving and start spending in retirement? Financial considerations, health issues, lifestyle changes, and living accommodations are just a few of the factors you have to juggle when you finally break the piggy bank.  

Do the Math

The main considerations, if there are no serious health issues, are typically financial ones. There are many questions to ask yourself about your financial situation before you start spending your hard-earned money: How does one know if they saved enough? Will there be enough money to last? What about unexpected issues that come up?


Calculating the amount of money needed is based on the projections of monthly income desired with the years remaining until the age of the average life expectancy. The Center for Disease Control and Prevention currently reports the average life expectancy of Americans is 78.8 years. This is an average made between males and females, which is fine to use for calculations regarding couples. Females, on average, live longer, to 81.1 years. Males live on average to 76.3 years.

If one thinks they might outlive the average life span, the way to mitigate this risk is to buy an insurance annuity policy that pays a certain monthly amount. If that person lives longer than the averages, the insurance company takes on the risk. Another way is to make sure there is plenty of extra money left in the estate for inheritance by beneficiaries. These extra funds are also important to cover the possibility of severe health issues that might use up significant amounts of financial resources.

Monthly Income

Choose a figure for monthly disposable income. This is after-tax income and should take into consideration any Social Security payments. The amount coming from Social Security reduces the amount needed in savings. In the math example, Social Security payments are not included. There should also be an annual increase used in the calculation, which represents an estimation of the annual earnings on the remaining funds.

Math Example

  • Retirement Age: 65
  • Expected Remaining Lifespan: 78.8 - 65 = 13.8 years
  • Monthly Income Desired: $5,000
  • Annual increase: 5%

Using the Annuity Calculator found on the Bankrate website, enter these figures:

  • Withdrawal amount: $5000.00
  • Interval Between Withdrawals: Monthly
  • Starting Principal: LEAVE BLANK
  • Annual Growth Rate: 5%
  • Length of Annuity in Years: 13.8

Click on the Calculate button, which gives the amount needed at Month 1 of $594,733.80 as the starting principal required to make those monthly payments for all those years. That is the amount needed in savings before one could start spending at a rate of $5,000 per month.

Health Considerations

Health problems can be a major financial burden. gives estimates of how much care an older adult might need, the estimated cost of care and the different ways to pay for care. This figure will be different for each person, but it ranges from $3,293 to $6,965 per month for a period of one to three years. Using a worst-case scenario for our math example, this would add $6,965 x 36 months, adding $250,740 to the total needed.

As older adults approach retirement age many like to downsize and simplify their lifestyle. A popular choice is selling a big home and moving into a smaller place in age-restricted communities or active adult communities to lower monthly income needs.