Transitioning From 403(b) Saver to Post-Career Spender
October 11, 2025
By Barbara O'Neill, CFP®, AFC®
The 403bwise Facebook page is chock full of questions and answers about saving for retirement, especially how to exit high-cost 403(b) vendors and select low-cost 403bwise green-rated vendors and Roth IRAs. Relatively few questions pertain to handling retirement savings accounts after people retire.
Most public school employees have pensions and some (e.g., couples with dual pensions and highly paid administrators) are able to pay all their retirement living expenses from guaranteed income sources (e.g., pension and Social Security). This begs the question: what to do with money in retirement savings accounts beyond mandatory withdrawals for 403(b) required minimum distributions (RMDs)?
The transition from saver to spender can be difficult emotionally, especially for conscientious super-savers who I call “ants” (channeling the Aesop fable) in my book Flipping a Switch. Many 403(b) participants have followed advice to “save, save, save” for decades and are hesitant to spend their savings when they retire. Psychologically, seeing less money than they had before feels like a stock market loss.
This post describes savings withdrawal strategies and a new “rule” that suggests how much retirees can spend daily without diminishing their overall wealth. Bequests to family and charities are also discussed as well as strategies to “practice” a higher level of spending. Also included is a summary of research studies about retiree spending. The post concludes with three “need to know” facts and six take-away action steps.
Savings Withdrawal Strategies
RMD Default — Required minimum distributions (RMDs) begin at age 73 or 75, depending on birth year, and the IRS Uniform Lifetime Table includes retirement plan distributions through age 120+. Many people with tax-deferred accounts, such as 403(b)s, use their RMD as a de facto annual savings withdrawal. They have to take the money out anyway and the extended timeline virtually assures they will not exhaust their savings.
Each year, RMDs will vary with changes in investment performance and age-based divisors that get smaller as retirees get older. As divisors get smaller, the percentage of retirement account assets that must be withdrawn gets larger. RMD withdrawals can be spent, gifted, and/or re-saved as shown in the planning worksheet below.
Below are withdrawal strategies to consider for non-RMD assets (i.e., Roth and taxable accounts):
4% Rule — This guideline was derived from 1994 research that found a high probability of having retirement savings last at least 30 years if 4% of the account (with 50%/50% invested in stock and bonds) is withdrawn during the first year of retirement and this amount is inflation-adjusted during subsequent years. Example: with $500,000 of savings, $20,000 would be withdrawn in year #1 ($500,000 x 0.04). If inflation is assumed to be 3%, the year # 2 withdrawal would be calculated as follows: $20,000 x 0.03 = 600 + $20,000 = $20,600.
Recently, the author of the original study, Bill Bengen, studied more current investment performance data and found 4.7% to be the safe retirement withdrawal rate to avoid running out of money.
Life Expectancy Method — This is where people use online calculators to estimate their life expectancy based on individual factors such as personal health status, health habits, and family health history. They then divide their nest egg by the number of years they think they will live. Example: with 20 years of estimated life expectancy, $500,000 ÷ 20 = a $25,000 withdrawal per year. Of course, no one has a life expectancy crystal ball.
Dynamic Withdrawal Method — Also known as the “guardrails” strategy, retirees adjust withdrawals annually based on investment performance and market conditions. Starting with a base withdrawal rate (e.g., 4% of retirement savings), if their portfolio grows above a “guardrail” (e.g., +10% increase), they increase withdrawals and, if the portfolio dips below a “guardrail” (e.g., -10% decrease), they reduce withdrawals. This method requires discipline to adjust spending.
Social Security Delay Strategy — This involves delayed Social Security claims up to age 70 to maximize benefits. In the meantime, you withdraw money for living expenses from retirement savings accounts if pension income is insufficient. After age 59½, the 10% early withdrawal penalty for tax-deferred accounts goes away. Other sources of “bridge” money are a reverse mortgage, part-time job, and taxable accounts, where gains are taxed at long-term capital gains rates.
Carve-Outs — Some retirees proactively earmark money from their retirement assets for heirs and/or long-term care expenses instead of spending it. Example: in 2025, the estimated national average cost for skilled nursing care is approximately $9,555 to $10,965 per month for semi-private and private rooms, respectively. Using $10,000 for simplicity, if someone wanted to cover five years (60 months) of expenses they would carve out $600,000.
The 0.01% Rule
In the book The Wealth Ladder: Proven Strategies for Every Step of Your Financial Life, financial author and blogger Nick Maggiulli presents a guideline to determine how much you can spend guilt-free every day. Called the “0.01% Rule” or “One Ten Thousandth Rule,” it states that if a potential purchase costs 0.01% or less of your net worth, you should not agonize over the decision because it will not jeopardize your wealth. This rule is especially relevant for frugal “ants” (myself included) who saved diligently for decades in 403(b)s and elsewhere and need “permission” to spend.
A 0.01% daily investment return translates into a conservative 3.65% a year (0.01% x 365 = 3.65%). Thus, “extra” money that you can spend without worry (above normal household expenses) is replaced by daily earnings on your wealth. Below are examples of the 0.01 Rule at various net worth (assets – debts) levels:
- $10,000 x .0001 = $1 per day
- $100,000 x .0001 = $10 per day
- $1,000,000 x .0001 = $100 per day
- $5,000,000 x .0001 = $500 per day
Bequests and Philanthrop
It is unlikely that long-term savers with large balances will die without leaving some money in their 403(b) or other investments. Therefore, they need a plan to distribute this wealth. It is also important to periodically review named beneficiaries of life insurance and tax-deferred accounts using a master list for easy review.
Beneficiary types include a spouse, non-spouse (e.g., child, sibling, cousin), and qualified charities. Surviving spouses have several options for their inheritance, the easiest of which is to roll inherited money into their name and start RMDs at their required age. Non-spouse beneficiaries must fully withdraw account assets by December 31 of the 10th anniversary of the original account owner’s death. If the original owner was already taking RMDs, beneficiaries must make annual withdrawals in years 1 to 9.
Some people name charities as the beneficiary of their tax-loaded retirement savings accounts and gift money held in taxable accounts (with a stepped-up basis) to family members, thereby relieving them of RMD hassles. No Federal tax is owed by charities.
Practicing Spending
Ingrained savings habits die hard. Below are three suggestions for older adults to spend retirement savings:
Step Outside Your Comfort Zone — Practice spending on splurges, upgrades (think orchestra seats and business class flights) and “big ticket” purchases that the 0.01% Rule says you can afford.
Answer Some Hard Questions — Ask why did you amass a cash stash if you have no plans to spend it or gift it? What are you waiting for? Will your health get better with age? If you don’t spend your money, who will?
Automate Savings Withdrawals — “Set and forget” withdrawals to avoid the “pain” of taking money out of savings. Options include transfers from savings to checking and automatic withdrawal options on mutual funds.
Research Results
A study of spending in retirement found that retirees in the top quintile of financial wealth are spending nowhere near an amount that would place them in danger of running out of money. Rather, their average financial assets increased and most spent less than their income.
Another study found that retirees spend far more from lifetime income (80%) than accumulated wealth (about 50%). The researchers noted that retirees could increase spending by converting wealth to lifetime income or following spending rules that shift investments into liquid savings.
Three (More) Things
- Uncertainty about health and long-term care costs can impact retirees’ reluctance to spend down savings.
- Monte Carlo calculators estimate the probability that savings will last a period of time (e.g., 30 years).
- Retirement is the most expensive “purchase” most people save money for and needs a spend down plan.
Six Smart Strategies
No. 1: Develop a Retirement Spending Plan (Budget) — List expected sources of income and fixed, variable, and occasional (e.g., quarterly) expenses.
No. 2: Prepare a RMD Withdrawal Plan — Determine a set-aside for income taxes and how much to spend, gift, and/or re-save.
No. 3: Front-Load Travel and Leisure Spending — Plan to spend more during the “Go-Go” years (~age 60 to 74) when you are healthiest and most mobile.
No. 4: Do Some Calculations — Apply the 4% Rule to your retirement savings and the 0.01% Rule to your overall net worth.
No. 5: Review Your Beneficiary Designations — Make sure they are up to date and contingent beneficiaries are named as a “Plan B.”
No. 6: Get Help When Needed — Consider hiring a certified financial planner® to help you determine how much you can comfortably spend.
In Summary
Saving money for retirement in a 403(b), IRA, or elsewhere is the accumulation phase of retirement planning. It is equally as important to focus on decumulation. Your retirement savings is YOUR money. Decide where you want it to go.
This post provides general personal finance information and does not address all the variables that apply to an individual’s unique situation. It should not be construed as legal or financial advice. If professional assistance is required, the services of a competent professional should be sought.
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Dr. O'Neill is the owner/CEO of Money Talk: Financial Planning Seminars and Publications where she writes, speaks, and reviews content about personal finance. She is a Distinguished Professor Emeritus at Rutgers University and a long-time 403(b) plan participant.