What Can Go Wrong: The Snowball Effect of Overspending

Retirement overspending rarely results in immediate bankruptcy. Instead, it causes a slow, agonizing tightening of the belt later in life. The danger lies in the Sequence of Returns risk. If you withdraw heavily from your portfolio to fund luxury purchases during a market downturn in your early retirement years, you permanently cripple your portfolio’s ability to recover.

When the money runs low in your late seventies or eighties, you cannot easily return to the workforce to replenish your accounts. You are forced to make painful lifestyle cuts at an age when you should be comfortable. Running out of money means relying entirely on Social Security and potentially becoming a financial burden on the very children you tried to help earlier in your retirement.

“Financial peace isn’t the acquisition of stuff. It’s learning to live on less than you make, so you can give money back and have money to invest. You can’t win until you do this.” — Dave Ramsey, Financial Author