You spend 30 or 40 years doing almost everything right.
Save instead of spend. Max out the 401(k). Invest the bonus. Live below your means. Think twice before splurging. Let compound growth do its work.
Then retirement arrives, your financial adviser tells you that you have plenty of money, and suddenly the rules are supposed to change.
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Go ahead. Take the trip. Remodel the kitchen. Fly first class. Help the grandchildren. Enjoy yourself.
For some lifelong savers, shifting from accumulating wealth to spending it can be one of the hardest financial transitions of retirement. I’ve heard this repeatedly from financial advisers who work with affluent retirees. Some clients have multimillion-dollar portfolios and financial plans that remain solid well into their 90s, yet they still hesitate to spend $10,000 on a family vacation or upgrade a home that no longer meets their needs.
The problem often isn’t whether they can afford it; it’s whether they can give themselves permission to spend it.
When $8 million still doesn’t feel like enough
Tessa Steinemann of True Alpha Wealth Management in Sandusky, Ohio, works with a retired woman we’ll call Suzie.
Suzie, 65, and her 75-year-old husband have more than $8 million in investable assets. Yet when she considered spending about $10,000 to take her family away for Christmas, she struggled with the decision.
The couple hardly touches its portfolio other than the husband’s required minimum distribution from his IRA. Financially, the trip wasn’t going to derail anything.
Emotionally, it was another story. “A lot of the hesitation to spend with the baby boomer generation comes from their parents living through the Great Depression,” Steinemann says.
Suzie’s parents were extraordinarily frugal. Their children worked while growing up, spending was closely monitored and the family absorbed a powerful lesson: Money needed to be protected. Those lessons can remain long after the circumstances that created them disappear.
Steinemann reviewed Suzie’s financial plan and showed her what the couple could comfortably spend each year. But she also reframed the decision around something a spreadsheet can’t measure very well: time.
Suzie’s adult children have successful businesses and don’t need a large inheritance. For them, a family vacation today could be worth far more than receiving additional money decades from now. So Suzie booked the trip.
The episode illustrates an irony I’ve noticed in writing about retirement: The people who become particularly good at accumulating wealth can sometimes become particularly uncomfortable using it.
Disciplined savers question purchases. They comparison shop. They avoid waste. They delay gratification. Those are excellent habits when you are 45 and trying to build a retirement portfolio, but they can become restrictive at 70.
Spending your portfolio can feel scary
(Image credit: Getty Images)
For many retirees, the difficulty begins with something more fundamental: After a lifetime of receiving a paycheck, spending from investments feels wrong.
“It’s a tricky process to go from savings to spending,” says Lisa Kirchenbauer of Omega Wealth Management in Arlington, Va.
Kirchenbauer recently began working with a high-net-worth Washington, D.C.-area couple in their early 60s who are transitioning from executive careers into retirement. They had never worked with an adviser and brought several common worries with them: spending too much, long-term care costs and the possibility of a major market downturn.
They also have no children, adding another question to the retirement calculation: Who will take care of us when we are old?
The couple has significant financial resources and recently built a dream home in a community they love. Kirchenbauer is helping them develop an aging-in-place strategy while also modeling their future spending.
But the numbers are only part of the job. Some clients want to see detailed projections. Others need frequent reassurance. And for couples who have spent decades measuring financial progress by how much they’ve saved, drawing money down can feel like going backward.
Advisers like Kirchenbauer sometimes find themselves doing something retirees never imagined they would need: permitting them to spend their own money.
When watching the balance rise becomes the reward
Ryan Maynard of Vaquero Private Wealth in Dallas has seen another version of spending guilt. For some wealthy clients, he says, the pleasure of accumulating money wasn’t primarily about what the money might someday buy. The pleasure was watching the number get bigger.
“Once you understand that, the spending guilt behavior makes sense,” Maynard says. “Spending doesn’t feel enjoyable; it feels like losing ground.”
One of his clients built a uniform-manufacturing business that eventually produced several million dollars of wealth. She had worked so hard for so many years that she rarely traveled. After retiring, the habit continued. Travel felt unfamiliar and intimidating, and she still found herself thinking she didn’t have enough time or money.
Maynard worked with a multimillionaire who continued to live in a high-crime neighborhood despite ongoing safety concerns, because she believed she couldn’t afford to move. Another client, in his 80s and with millions of dollars in excess capital, resisted accessibility improvements to his house even after multiple falls landed him in the hospital. The money was there, but changing the behavior was harder.
Maynard sometimes runs a financial plan twice: once including the expense that’s holding clients back and once without it. Seeing two nearly identical long-term outcomes can help a client understand how little a purchase may affect overall financial security.
Your spouse may have a different money story
Spending anxiety becomes more complicated when couples see money differently. One spouse may view their savings as a tool to enjoy retirement. The other may still see the portfolio as protection against everything that could go wrong.
Maynard had one couple in which a spouse became more comfortable traveling after they set aside three years of spending needs in cash. Another client needed monthly financial planning reviews before she felt comfortable continuing to spend as planned.
The solution wasn’t necessarily earning higher returns, but identifying what would make the fearful spouse feel safe.
Derek Wittijohann of Premier Path Wealth Partners in Madison, N.J., saw the power of family history with a client whose father died without leaving enough financial support for his mother. The son watched his mother struggle and made himself a promise: That would never happen to his family.
Years later, he had significantly exceeded his own retirement savings goal. He understood intellectually that the family had enough. Emotionally, the childhood lesson remained powerful. Wittijohann stress-tested the portfolio using conservative assumptions and mapped income from Social Security, pensions, investments and required distributions.
But one of the most productive conversations came when the client’s wife joined the discussion. She talked about the experiences they wanted together and what postponing retirement was costing them in time.
Bottom line: The client was effectively trying to improve an already extremely strong retirement plan while sacrificing years when he and his wife were healthy enough to travel and enjoy it.
Give your money a job
(Image credit: Getty Images)
For retirees who find the idea of “spending more” uncomfortable, smaller buckets can help. Evan Mills of Scholar Advising in Winston-Salem, N.C., might tell a client that $30,000 a year is specifically available for travel rather than simply saying, “You have plenty of money. Spend more.”
“If someone has $500,000 available annually, the number may feel extravagant. Divide it into $200,000 for living expenses, $100,000 for travel, and $200,000 for family gifts, for example, and each dollar suddenly has a job. It makes it look less like reckless spending and more like permission to spend,” Mills says.
That doesn’t mean retirement should turn an Applebee’s regular into a five-star restaurant connoisseur.
One of Mills’ clients had accumulated about $20 million in company stock before retiring from a senior executive position in California and moving to Georgia. The client didn’t want a flashy new lifestyle that might create distance from friends.
So the upgrades were modest. They still traveled, but sometimes flew first class. They hired a black car instead of an Uber. In Italy, they chose private tours. At familiar restaurants, they might order the better bottle of wine and leave a little more for the tip.
Their lifestyle improved without forcing them to become people they didn’t recognize or wondering if their neighbors would talk about them.
Spend it, gift it — or leave it?
For some families, the question eventually becomes less about whether the money will be spent and more about when it will be transferred.
Wittijohann calls it the “warm hand versus cold hand” decision: Do you give money to loved ones while you are alive and can see them use it, or leave a larger inheritance after your death?
He works with a 70-year-old woman whose family recently sold a successful New York jewelry business. She wants to provide for her children but also worries about protecting the money from possibilities such as a future divorce.
There is no universal answer. Some retirees care deeply about leaving a large legacy. Others would rather pay for a family vacation, help with a first home or fund a grandchild’s education today.
The first step is deciding what you actually want your wealth to accomplish.
What was all that saving for?
Perhaps that is the question lifelong savers eventually need to ask themselves. Saving is usually attached to a future purpose. For decades, retirement itself may have been that purpose. Once retirement arrives, the job of the money can change.
Your portfolio might provide security. It might create experiences with family. It might support children, grandchildren or charities. Or it might simply give you the freedom to make life a little easier and more enjoyable.
As Maynard puts it, the purpose of accumulated assets is different for each person. The goal is to understand what you want the money to do for you.
You don’t need to abandon the habits that made you financially successful. But after a lifetime of saving, retirement means finally learning to enjoy what you’ve built.