How To Develop A Spending Policy Statement

Let's discuss the importance of creating a spending policy statement to help navigate the transition from saving for retirement to actually spending the accumulated wealth. Many individuals spend 30 to 40 years saving for retirement, focusing on accumulation. However, when it comes time to start spending, it can be a psychological hurdle for many.

A spending policy statement serves as a roadmap on how to use savings prudently and constructively, providing motivation to spend without fear of running out of funds. There are four key components to consider when creating a spending policy statement:

1.  Start with the end in mind by setting financial goals and using tools, such as financial planning simulations to determine the probability of success.
2.  Provide a monthly portfolio paycheck to shift the focus from accumulation to spending, utilizing distribution strategies like the 4% rule.
3.  Set dates on bucket list items to turn dreams into achievable goals and incorporate them into the plan.
4.  Establish a framework for giving, including tax considerations and estate planning, to determine how wealth will be passed on.

It is important to continuously review and update the spending policy statement annually to adapt to changes in circumstances and ensure financial stability. By creating and following a spending policy statement, individuals can navigate the transition from saving to spending with confidence and clarity.

Darryl Jarmosco, CFP®, ChFC®, specializes in retirement planning in Grand Haven, MI.

Securities offered through Registered Representative of Cambridge Investment Research, Inc. a Broker/Dealer, Member FINRA/SIPC. Advisory services through Cambridge Investment Research Advisors, Inc., a Registered Investment Advisor. Cambridge and Jarmosco Financial Advisory are not affiliated. Cambridge does not offer tax or legal advice. Fixed insurance services offered through Jarmosco Financial Advisory