Retirement Spending: Turning a Lifetime of Saving Into a Plan for Living

After spending decades accumulating wealth, shifting into retirement spending can be more difficult than expected. For many retirees, the challenge is not simply determining whether they have enough assets. It is becoming comfortable using those assets without feeling that they are jeopardizing the future. 

Derek Gabrielsen, CRPC®, and Dave Abate, CFP®, discuss the psychology behind this transition and the role a financial plan can play in evaluating spending decisions. The conversation covers retirement anxiety, individualized spending goals, stress testing, withdrawal sequencing, tax efficiency, lifestyle expenses, and the balance between enjoying wealth today and preserving assets for future generations. 

This episode offers perspective for investors considering what they ultimately want their retirement assets to accomplish and how a financial plan can help bring structure to those decisions.

Transcript

SPEAKER_01 0:00

Here's a retirement paradox nobody talks about. One in three retirees reach their mid 80s with their full nest egg intact or larger. They saved enough, they just never gave themselves permission to spend it. Today we're talking about why and how to fix it. Hey Dave, how are we doing today?

SPEAKER_02 0:24

I'm great, Derek.

SPEAKER_01 0:27

Yeah, well, thanks for coming back and joining me today. Tony's out on assignment today. So we uh yeah, we got a good one for you today. So um, you know, I think we did a similar topic, uh, must be almost over a year ago now. Um, and some of my clients called me up and said, Hey Derek, so it sounds like you're just giving me uh permission to spend uh whatever I want. Uh spend like a drunken sailor is what someone said, I think. Um, but yeah, today we're talking about um, you know, basically enjoying your retirement, right? So um it's a very natural phenomenon that that that I deal with all the time. I know Dave does as well, uh, where you you know do all the right things, you get to retirements, and then you're in retirements and you become kind of afraid to spend a little bit.

SPEAKER_02 1:18

Well, I think that's just it. It's almost like the characteristics and the strengths and the skills to get you to accumulate that nest egg are kind of you know inherent in yourself. And then when you get to the point where now you get to actually spend it, it's an unnatural place to be for a lot of these folks.

SPEAKER_01 1:37

Yeah, for sure. I mean, you've been you know uh saving your whole entire life, right? And now you have to turn that button off and then press and start pressing the spending button. It uh it just doesn't feel natural to a lot of people. So let's get into it. So um, so yeah, we're uh we're like the Cleveland Guardians here. We got a bunch of bunch of data we can go through. Um but basically um I'll just read a couple off and then we'll talk about them. So two-thirds of retirees said rising prices or market swings have made them feel less free to enjoy their retirement over the past year. Only 15% of retirees said days always reflect what matters to them most. So 15, one five percent of retirees said their days always reflect what matters most to them. And three-quarters said they feel at least some urgency to live well in the years uh ahead. Um, but most of them are not doing that.

SPEAKER_02 2:36

And what I hear with all those stats, and I love all the stats, Derek. Yeah, like you said, the Guardians, we're analytically, we're winning this. But um, you know, with this with that sentiment, what it comes down to is anxiety. Yeah right, people are worried about the future and how it could go wrong, and really you know, that's where we kind of come in, right? We're trying to help them sort through all that uncertainty, give them some numerical support to unlock that you know that that ability to just spend more money in in the in the context of like still not jeopardizing your retirement plan.

SPEAKER_01 3:14

Yep, for sure. Here's and here's another stat. Um, more than three-quarters of retire retirees, 76%, say they regret not starting to save earlier in their lives, while nearly the same amount, 71%, wish they had saved more. So basically, you know, those are some some giant numbers that are expressing regret, right, of of not doing the right things to to save for retirement.

SPEAKER_02 3:44

And it seems like they're kind of conflicting. Like we're it sounds like from what I'm hearing, there's a there's a huge chunk of people ending up with a larger nest egg than they can actually spend, but they're telling themselves, I wish I would have started earlier and saved more, so the nest egg could have been larger. So I'm and here's the thing like there is not one right and wrong answer to all this, right? For sure. To be to be clear, if you're in the camp where you have this large nest egg, you've saved it, and uh you have regret because you're not living the lifestyle you want to be, and you're leaving opportunities on the table, those are the people we want to help give you information to make informed decisions on how can I responsibly spend this down, right? Now there's other people who say, hey, listen, uh my goal is to just build up my legacy, right? Pass it on to the next generation, and I want to continue to accumulate. I'm gonna live below my means. I don't want to spend it all down to dollar zero. Um, so you you kind of have to know what your goals are, but we can give you the information to at least equip you to make that decision.

SPEAKER_01 4:51

Yep, absolutely. And um, yeah, more numbers here. This isn't from what you just said. Uh, two thirds more than two-thirds, 70% of American retirees believe it is very important their Nest A doesn't shrink in retirement. So they're 70%. That's a big number. Um they want to end up with more, it sounds like, than they started retirement with, right?

SPEAKER_02 5:17

It it's it that's right. And going back to one of the last points, like you have to define what you want out of it, right? Like we've got we've got clients who say, I want my last check to bounce. That's my goal. And we've got clients to say that, you know, I want to pass on generational wealth, whether it be, you know, to fund education for my grandkids and their kids, like there's there's not right and wrong. It's defining what it is so we can actually drive in the right direction.

SPEAKER_01 5:43

Yeah, for sure. And that's why, you know, we we talk about a lot of these um, you know, rules, rules you might see on the internet, like uh, you know, four percent withdrawal rates, um, you know, whatever you know, rules you see out there, um may or may not apply to your situation, right? That's why it's so important to set your own goals because you know, my goal and you know my neighbor's goal might be completely different, right? Um, like you said, some people are looking to pass down, some people are looking to spend it all. It's really what what you are what what what are your main priorities should really shape your plan so you can come up with a plan so you don't have all these anxieties because the numbers are pretty alarming, honestly. And that like I knew obviously there was anxiety out there, I knew it was a big step, you know. And I have you know dealt with that with all my clients for a lot of years, but um, yeah, seven out of ten people basically freaking out.

SPEAKER_02 6:41

And you you know what you said on you said something really important, it's a little bit of a sidebar, but I think it's worth talking about because I hear this on a semi-regular basis. Financial advice is not blanket statements, right? It's not like across the board the supplies. Like once a month I'll hear someone say something ridiculous, repeat something Dave Ramsey says. Yeah. And I'm like, I don't know who his audience is, but I think I'm assuming it's like people who have a hard time controlling their spending and their debt. So he's trying to just get them back to break even.

SPEAKER_01 7:14

Right.

SPEAKER_02 7:14

But some of the advice that I hear repeated back to me, and in the most common one is like, hey, I've got this low interest mortgage, right? So it might be at like three percent. And my number one goal is just paying off this mortgage, like as my highest priority, and I'm gonna use my you know, high yield savings funds that are earning four percent to extinguish this debt, which makes no mathematical sense. Right. But to that point, like you've got to understand what your goal is, what you're driving at, what your priority is, how it applies to your situation to develop your custom strategy. And that's something that you know that we we do for for our clients.

SPEAKER_01 7:50

Yep, for sure. So, um, so yeah, let's uh hop into the next section here. You know, basically, what what's the psychology of the saver who can spend? Again, you know, we're we're not saying there's anything wrong with that. In fact, we're kind of saying the opposite, you know, basically everyone has has this problem uh to to some extent. Um, so you know, it and like I said, you know, it's a it's a distinct shift from going into uh you know your spending mode in retirement from saving literally your whole entire life, right? You're when you're when you're a kid, you you're told, you know, you gotta save, right? You got money for your seventh birthday. Uh you gotta put that in the bank, right? I just want to buy some action figures or something, some He-Mans.

SPEAKER_02 8:36

Yeah, it's it's understandable how people get there. Um, and I think the biggest thing we can do is just give you knowledge. Knowledge is power. Some of the tests that we run, you know, to give you practical information is we'll run a bear market test. Right. Like when we run our financial plan, we'll say, well, what if the market doesn't cooperate? And we model that well, you know, a market crash. How does it impact your financial you know plan going forward? And then the other, you know, the other test is the max spend, Eric. How does the max spend work?

SPEAKER_01 9:06

Yeah, so basically um we use a uh an increased expense number to take your spending all the way up to where your Monte Carlo's would equal 80%. So basically, how much more can you spend and still have a working plan?

SPEAKER_02 9:25

Exactly. So then when that you know when life unfolds, as we call it, and you have a trip, you know, with your family that comes up in an opportunity where you could treat your family, or you have a home improvement project, now you have like a guardrails, we'll call it of like what's that spending bandwidth we have above the normal rate where we can handle this kind of an increase and not jeopardize our our plan overall.

SPEAKER_01 9:50

Yeah, for sure. Yeah, it's all about it's all about the knowledge that that you can gain through a financial plan and you know your spending level in retirement is is one of those those major things, um, as well as how to pull the money out, right? So um maybe we'll we'll sneak this in here. Um withdrawal strategies. So just you know, you have all these different kinds of accounts you've been saving to saving into over the years. Uh, you know, what's what's the right order? You know, and it may sound trivial, but um, you know, there's um, I believe it's a Vanguard study that we cite all the time, um, basically saying that if you withdraw money properly, uh basically, you know, from the ground up, so least tax efficient to mo to most tax efficient, just by doing that, you can add about five years onto the length of your retirement plan.

SPEAKER_02 10:45

That's right. That's right. So same it's about controlling the controllables, right? Your investments are the same, your risk levels the same, but we we're gonna play the what I'll call the tax game to your advantage so that your NASDAQ will last as long as possible. Yep, for sure.

SPEAKER_01 11:03

So, yeah, so let's um let's let's wrap this up by uh talking about you know kind of the the framework. Um we've kind of been hitting on some of these, so so I'll I'll touch on this first one again and then we can kind of see where we want to go. Um, but you know, as as silly as this sounds, um uh the some of my clients use this exact terminology, uh basically a permission slip. So um, you know, that that it's I'm obviously not in charge of their spending, but they they essentially say, you know, hey, can we do this? And they ask me, and you know, as long as I say okay, then then they do it. Um so you know, having that financial plan, but then obviously using it and updating it as you go through retirement is so important. I mean, just look at the the different landscape we're in right now versus 2019, right? Just completely night and day different, interest rates are different, um, just a different world. So we have to update those plans to make sure um that that their plans are still good, but more importantly, continue to give them that confidence that they can spend what what what what they're you know set out to spend.

SPEAKER_02 12:13

Exactly. And it's I think you know, when we meet with our clients and those progress meetings, it's one of the biggest light bulb moments that I get it, you know, enjoyment from is seeing that client on the other side of the table and you know, husband and wife looking at each other and like, hey, we you know I we just heard our spending power, like we can we can do that like big family trip and treat the kids every year and and not you know lose any sleep over it. Like that's such a rewarding experience.

SPEAKER_01 12:41

Yep, absolutely. Um, and yeah, that I think line item line iteming out uh certain expenses like that makes a big difference in a financial plan. Um, so you know, I got a client who I saw recently, they do a giant family trip every other year. So, you know, we put in uh pretty big number every other year, and and they they get the whole family together, right? So that's that's what's important to them. That's that's their goal, and and we figure out how to how to make that happen. Well uh there's um one one more, the the fun money account is also a good one on the on the line items. Um, you know, so basically it's just kind of that that spending gap, right? Where you know you got all your basics covered, um, but you don't want to be pinching pennies, you know, not going out to dinner or doing the things that you want to do. So, you know, I you know put in five thousand dollars a year just in you know, spending money essentially uh helps people out quite a bit.

SPEAKER_02 13:42

Yeah, and a tool that I actually had a client this week tell me about the way that they they look at it is they say, hey, you know, we kind of segment some of our investment accounts out, and we've actually carved out what I'll call the higher octane bucket for that fund money purpose. So that the you know, the vast majority is for living expenses and the you know nuts and bolts of of living, but then we've carved out this higher octane part, and this the goal of this is two twofold. Fund money, and then also anything that passes on, we want it to grow as much as possible, and it's going to be a legacy tool. So I thought that was a cool way to do it to kind of segment it out, and then you can kind of keep yourself on track where if the market's not cooperating, maybe the fund money bucket has shrunk a little bit, but you're not jeopardizing the parts of that that's actually funding the you know the retirement expenses.

SPEAKER_01 14:31

Yep, for sure. That that's an excellent point for sure. Um, so you know, one last thing um I'll I'll touch on here because I I thought it was a good way to wrap up. Um, you know, this is a pretty good, pretty good quote, actually. So, you know, uh at we're talking end of plan here. So um we've we've been talking about, hey, you know, people are you know maybe end up with more than they started with in retirement uh based on their spending or or that lack thereof. But when you pass away, right, at the end, at the end of the plan, as they say, your money's going somewhere, right? So you can you can see that being enjoyed wh while you're alive, or you know, it it it gets spent on your behalf, um, which is a pretty good way to to say it, honestly. Um so so yeah, make make sure your plan is hitting the goals that you want, um, because that this is your chance to kind of direct how it goes, and you've been saving, you know, your whole life to get here. So make sure you know you have a plan that that um really you know tackles all the goals that you want to hit when you're in retirement.

SPEAKER_02 15:40

That's well said. My client this week said to me, you know, Joe, we can either fly first class or the kids are gonna fly first class. So that's kind of how I, you know, that that stuck with me this week.

SPEAKER_01 15:53

Yep, absolutely. Yeah, that's a good one.

SPEAKER_02 15:55

All right. Well, um, any uh any uh parting shots here, Dave? I think this is uh you know, this is an important one. And really, step one is kind of what we talked about before and just giving it some thought. Like what what is your priority? Yep. You know, where do where do how do you want your money to work for you? Because that's gonna define everything in terms of how you structure this.

SPEAKER_01 16:14

Yep, absolutely. So make sure you hit those goals in your plan. Make sure you you plan things out uh so you can enjoy uh your retirement how how you want to enjoy it. So uh thanks everyone for listening this week. If you guys have any questions, comments, uh hit us up at info at swpconnect.com, and we'll talk to you next week.

SPEAKER_00 16:36

The opinions expressed in the podcast are for general informational purposes only and are not intended to provide specific advice or recommendations for any investment. Legal, financial, or tax strategy. It is only intended to provide education about the financial industry. Please consult a qualified professional about your individual needs.