Behind the façade of that beautiful multi-million dollar home on the Palos Verdes Peninsula the situation inside might not be so pretty. What I’m referring to is the financial health of the residents. During the past decade, if we extend back to the peak of the technology/Internet bubble in 2000, retirees have seen their stock portfolios devastated twice, with losses of up to 50 percent each time. The most recent bear mauling took place in 2008-’09 and was particularly painful because investors were just starting to feel comfortable again, having finally recovered from the 2000-’02 declines, only to see the gains, once again, vanish. The Great Recession of 2008-’09 hurt retirees even more, however, since real estate prices declined in tandem with stocks. Many retirees tapped home equity lines of credit, and spent excessive amounts on trips, cars and remodeling (or for whatever else suited their fancy). So, with stocks AND real estate in decline, it was a double-dose of pain.

In my investment advisory practice I see all sorts of different financial situations and the vast majority of my clients live on the Peninsula. What I have seen recently worries me greatly. Despite continual warnings from the financial press and advisors, investors continue to deplete portfolios and their retirement savings at a rapid pace. What they risk, if they live long enough, is running out of money in retirement. I view the seriousness of this financial problem facing more than a handful of our local residents, as something that could have been avoided, but typically the correct steps were not taken. The “correct steps” weren’t embraced by retirees who refused to cut back on their spending as the double-digit investment returns of the 1990s lagged this past decade—many couldn’t adjust to lower returns or simply didn’t want to. When one should have reduced spending on vacations, charitable donations, gifting to children and grandchildren, domestic help, without having to further deplete portfolios by selling securities and withdrawing assets, it’s obvious to me that many simply refused to cut back.

The generation of local retirees born in the twenties and thirties, has been incredibly generous, at least from what I have seen. They have paid for their own kids’ college educations, helped with down payments on their homes and then helped provide education for their grandchildren through 529 plans or custodial accounts. In addition, they have often supported multiple charities or other local interest groups. While their generosity is admirable and hopefully greatly appreciated by the recipients, it has left many retirees in even worse shape. And, despite depleted financial assets, I have still seen it very difficult for many retired investors to cut back on their spending, let alone their gifting. I can cite a recent example of a recent widow who knows she should cut back on her 5-day-a-week maid, but simply can’t get herself to do so. She reasons, “my maid is more than a maid, she is my companion and best friend. I can’t fire her.” Despite warnings that her maid’s “friendship” is prohibitively expensive (believe me there isn’t that much cleaning), she would rather risk running out of money, or waiting until it is absolutely necessary, before firing her maid or cutting back on her hours.

Another example I can cite of a local retiree refusing to make a financial adjustment, is of a woman living alone in a very large home, worth, I would estimate, $2.5 million, yet her retirement portfolio is “merely” $400,000 due to excessive withdrawals during the past decade or more. With a life expectancy of still ten years or more, and annual withdrawals greatly exceeding the portfolio’s earnings, it is quite obvious she will run out of money and be forced to sell her home. Yet, despite continual warnings and her own clear understanding of her situation, the emotional attachment she feels towards her home means she refuses to sell her property now to replenish her portfolio and savings. She apparently is waiting until her last penny is gone from her retirement account before being forced to sell her home. Yes, she has already looked into reverse mortgages and other expensive alternatives, but prefers to stay put and continue on “as is” for now, until the situation worsens and forces her to act. Who knows what her home will be worth when the time comes and she is forced to sell? It’s not a good situation.

What is clear is that many retirees simply refuse to live within their means. They continue to gift to charities, children and grandchildren and spend excessively on themselves (trips, restaurants etc.), as if it will all work out nicely in the end. It won’t – at least not for everyone.

Thankfully, for many on the Peninsula who are facing depleted portfolios as a result of below-average investment returns and high annual withdrawal rates (percentage of the portfolio withdrawn each year), many still have significant home equity they can tap in their final years. But, who wants to get to that point? Who wants to be forced to sell their home, late in life, to replenish savings and possibly pay for assisted living or other care?

For many it is too late to adjust, but for those of you who can still improve your financial situation, here are some tips to help your money last throughout retirement:

In your early retirement years keep your annual portfolio withdrawal rate to 3 percent or less of your portfolio’s value: Typical retirement calculators put the “safe” withdrawal rate for a new retiree at 4 percent and suggest you adjust your withdrawals up with inflation in subsequent years. I would take a more conservative approach and force yourself to keep withdrawals to 3 percent or less in the early years and do not adjust for inflation. Harsh? Perhaps, but my best guess tells me you’ll be happy you did. The 4 percent plus inflation-adjusted withdrawal rate often cited in the financial press includes years of portfolio returns when returns were highly unrealistic (most notably the nineties), so the 4 percent withdrawal rate is a bit excessive in my opinion.

Adjust to lower investment returns going forward (the new normal): My best guess tells me that we are in for another decade of tepid investment returns. With bond yields still near all-time lows, retirees cannot count on the income from a bond portfolio that used to provide healthy cash flow (money needed for expenses). In addition, stocks are priced to return low-single digit returns going forward. So, do not assume your portfolio will experience outsized gains in the coming years and adjust your spending accordingly. If I had to guess, I would say a balanced portfolio of 65 percent dividend stocks and 35 percent bonds will return 4 percent averaged annually this decade (much less than we saw in the eighties and nineties).

Adjust your annual withdrawals to your investment returns: Be flexible with your rate of withdrawal from your portfolio. If your portfolio has had a good run you may want to take some profits and withdraw a higher amount than you normally would…by all means do so. By selling stocks to allow for a cash withdrawal, you would reduce your risk (when the market is higher) and automatically adjust your portfolio’s stock allocation too. Likewise, if your returns have been poor or sub-par, try to reduce your withdrawals and maintain current positions until the market recovers. Of course, consider all tax implications before selling holdings in taxable accounts.

Don’t withdraw more than the Required Mandatory Distribution from your retirement accounts: I have seen many cases where retirees withdraw more than the required amount from IRAs and other retirement accounts each year. The result is a larger tax burden (withdrawals are typically taxed as ordinary income) and depleted assets. If possible, keep your retirement money intact as long as possible and do not withdraw more than the mandatory amount each year. This will more than likely allow you to pass on greater retirement savings to your spouse or children and allow them, in many cases, to continue the tax deferral.

Reduce your personal expenses: This is a no-brainer. If you are worried about your portfolio being able to support you throughout retirement, then make changes now. Reduce your expenses wherever possible…maybe take one vacation instead of two per year. Perhaps travel in the U.S. this year rather than abroad where flights and hotels will invariably be more expensive due to poor exchange rates. Cut back on gardeners or other domestic help if it is unnecessary…or reduce it to the minimum. Last, reduce or eliminate your gifting to charities, kids and grandkids. After all, gifting should really only be done by those who can truly afford to…don’t risk your own financial comfort by being overly generous.

If you are nearing retirement or still in the early years of retirement, make some adjustments now to ensure you are financially comfortable for the rest of your life.