The case for (carefully) spending more in retirement

It may have not felt like it, but saving was the easy part of retirement planning. Just two decisions to make: how much to save and how to invest. Once you reach retirement, things get trickier as you rely on what's saved to pay the bills. Figuring out a sustainable withdrawal strategy can feel like trying to play three-dimensional chess.

What will your investment returns be? How long will you live? Will you incur major expenses later in life for health care? Should you claim Social Security before age 70? Hint, if you're in good health at age 62, deciding to delay until age 70 is the smartest retirement income strategy.

Given all that uncertainty, it makes sense to err on the side of a conservative withdrawal approach. But for households that have done a solid job of saving, there may be a case for loosening your retirement purse strings a bit, if that might bring you happiness.

Yes, happiness. If ever there was a life stage where happiness is not just a goal but an earned benefit, it should be retirement. Indeed, research suggests that households with a chunk of retirement savings may in fact be in a position to spend a bit more.

A fresh analysis from the nonpartisan Employee Benefits Research Institute (EBRI) reported that three out of four people in 2017 who were at least 71 years old limited their traditional IRA withdrawal for that year to the required minimum distribution (RMD). Among retirees with at least $250,000 invested in an IRA, fewer than 20% withdrew more than the RMD. That hints at the possibility that many people are taking the RMD as a recommendation for what to withdraw, when it is in fact merely the minimum you must withdraw to satisfy the IRS. (Note: The RMD age has since been raised to age 72.)

Last year, asset management firm BlackRock issued a report in conjunction with EBRI that found that for people who started retirement with $200,000 to $500,000 in retirement accounts (housing equity is excluded), more than one-third had more money in those accounts 17 years into retirement.

For households that started retirement with retirement savings of at least $500,000, the median value of their accounts 17 to 18 years into retirement was more than 80% of the starting value.

Again, to be very, very clear: This is not a suggestion to start spending at will in retirement, but rather to raise the possibility that with careful consideration, you may in fact be able to spend more today.

Of course, there are plenty of vexing unknowns to worry about. As the BlackRock report noted, retirees from nearly 20 years ago were more likely to have an old-fashioned pension that provides guaranteed income. There's also the issue of when/if/how Congress will eventually close Social Security's cash flow gap, a move that could reduce retiree benefits. And at least for the next 10 years or so, market returns may be lower than their historical norm.

Moreover, today's retirees will, on average, live longer than retirees from 20 years ago. To that end, this is a life stage in which working with a certified financial planner can be your best investment. There are now plenty of CFPs you can hire on an hourly or project basis, if you're not interested in an ongoing relationship.

One strategy to consider is to cover your essential living costs from guaranteed sources of income. Social Security is one, as is a pension payout. If that covers all your essential living costs, then you can probably entertain a higher withdrawal rate from investment accounts. If those guaranteed income sources don't cover the essentials, you might discuss using some of your retirement savings to purchase a plain-vanilla income annuity; it works just like a pension payout. With that in place, you're now able to spend more of your remaining retirement investments.

Determined to leave an inheritance? OK, if you have all your essential costs covered by guaranteed income sources, you theoretically could invest more of your retirement accounts in stocks: When bear markets hit, you don't need to worry about covering your expenses.