Defy conventional wisdom in your retirement planning

— -- Putting away money for retirement is so difficult for many people that they fail to focus on how fast they’ll spend it after they stop working.

If you have a financial planner, you’re probably familiar with the term withdrawal rate. This refers to the percentage of total assets you plan to liquidate each year during retirement. The right withdrawal rate, coupled with the discipline to stick to it, enables retirees to make sure they don’t outlive their money.

In most financial plans, the withdrawal rate is a set percentage that applies each year. Yet this constant annual rate -- typically 4 or 5 percent per year -- denies the realities of retired life and aging. People are a lot a healthier and active in their 60s and 70s than in their 80s and 90s, so many end up spending a lot more early in retirement than later. Most will spend far more on travel, recreation and leisure activities early on, but many times their fixed withdrawal rate doesn’t account for this.

This all-too-common oversight stems from following conventional financial planning wisdom. It can lead to overspending early on, increasing the chances of running short of money late in retirement. Also, failing to anticipate a higher rate of spending early on means failing to save and invest accordingly.

A more realistic approach is to defy this conventional wisdom by planning a higher withdrawal rate for the first 10 or 15 years—depending on your resources, perhaps 7 or 7.5 percent annually—and then back the rate down—say, to 3 or 3.5 percent later in retirement. The idea is to bake these percentages into your holistic retirement plan. In setting these variable rates, you should consider:

• Your income streams—other than returns from investments, such as Social Security and private or government pensions.

• Your desired retirement lifestyle. As people are living longer and are healthier and more active in their senior years than previous generations, the notion of what to do with your time is changing markedly. Increasingly, people are regarding retirement as a time to indulge their passion, such as teaching or volunteer work. Or, to help pay expenses and make their nest eggs last longer, many work part time with flexible hours. The retirement cliché of sitting in rocking chair all day has become obsolete, except for the infirm, disabled and extreme elderly. Having part-time work or a consuming endeavor is a good way to play financial defense.

• Your travel and recreation plans. Try to decide, based on your preferences and resources, about how often you’d like to travel, where you’d like to go and in what style you’re able to travel. Then cost out these trips and try to put an annual figure on them, adding for inflation. Do the same thing for recreation while at home. If you’re in a country club now, will you be playing golf on a private course during retirement, paying high fees every year? Or will you be playing on a public course?

By specifically envisioning your life during retirement (activities that are affordable given your total assets and income streams) and what it will cost, and matching this against a realistic withdrawal rate that varies with your likely level of activity, you can increase your chances of a secure retirement with true peace of mind.

Byron L. Studdard is founder and president of Studdard Financial, LLC, a fee-only financial advisory firm based in Sarasota, Florida. In 2010 Studdard was listed in the Guide to America's Best Financial Planners published by the Consumers' Research Council of America, an independent research organization.

Any opinions expressed in this column are solely those of the author.