Five signs you are not spending enough money in retirement. Typically we get the question - am I spending too much? However, it is just as important to consider the alternative - am I spending enough?
This week on Friends Talk Financial Planning, we discuss the issue of underspending in retirement. While many people worry about running out of money in retirement, some retirees actually have the opposite problem: they aren’t spending enough.
As clients enter their 70s or 80s, they may realize they’ve accumulated more wealth than needed and are unintentionally leaving large inheritances for their children or grandchildren. While leaving money behind isn’t inherently bad, it may signal that retirees should be more intentional about spending to enhance their own lives.
Signs of underspending can come from loved ones, such as friends or family telling you that you're being "cheap" or encouraging you to spend more. Additionally, a spouse’s desire for nicer things, like a more expensive car or home upgrades, can point to the need to spend more to enjoy life.
While frugality is a valuable trait, retirees should assess whether their financial habits still align with their current lifestyle goals. Be intentional with your wealth, and strike a balance between saving and spending to fully enjoy retirement!
Resources:
- Alliance of Comprehensive Planners: https://www.acplanners.org
- John's firm website: https://www.trinfin.com
-Find us on Facebook: www.facebook.com/friendstalkfinancialplanning
-Money Guy Show Episode: https://youtu.be/zq-wLJ7NpRI?si=jKuRVtr1-CD7WY6i
#ACPMemberWisdom #financiaplanning #spending #spendinginretirement #retirementspending #retirement #retirementplanning #beintentional
TRANSCRIPT:
John: There's a lot of news lately about people spending too much and not being ready to retire. But there's another problem for people who have done well throughout their lives, and that can be underspending in retirement. And that's what we're going to talk about on today's episode of Friends Talk Financial planning. Hi, I'm John Scherer. I run a fee-only financial planning practice in Middleton, Wisconsin.
Bridget: And I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois. Before we talk about signs that you're underspending, please subscribe. That helps us get more viewers and helps us share the message. Okay, John, let's talk about signs that you’re underspending. What's your number one?
John: Everybody’s worried about spending too much, and rightfully so. We see folks who get to retirement at 55, 60, 65, and go, “Geez, do I have enough?” These people tend to be cautious. Even when we know professionally, yeah, you've got plenty, it's just hard to believe. And then you get to a spot at some age like 70 or 75, and you go, “Oh, yeah, I'm going to be in really good shape with this stuff.” So that's where I see a lot of people realizing or maybe believing that they can spend more and they're not spending all that they can to make their life ideal for them. All right, well, how do I know if I fit this category?
For me, one of those is as you start to get to that mid-retirement age group and you do your projections, are you on track to leave behind a really big inheritance for your kids or grandkids? And not that it's wrong to leave money to family. I'm not saying that at all. But the idea of, okay, geez, if I live into my late 80s or into my 90s and I'm going to leave a big mattress full of money to my kids, and if that's not exactly my goal right now (some folks have that as a goal), what can I do? If I think, “Listen, if they get money, great, but if they don't, that's okay too,” and I'm on track to leave them millions of dollars, that's one of those things that sparks me to have a conversation with folks.
Okay, let's be a little bit more intentional about this, because it starts to become real that they're not going to outlive their money; they don't have an overspending problem. And as I like to joke, we got to find some more bad habits for them in retirement, so that they spend some more money. Our friend Burt Whitehead used to say that all the time. But that's one of the things for me. Are you on track to leave behind a large inheritance when that's not your primary goal? That's something that causes me to think, hey, let's talk about where can we spend more to enhance the value of our life or give more to charities or to kids?
Bridget: Yeah. And the feeling that's associated with that is often befuddlement. How'd this happen? Wow, I wasn't trying to do this. And it's not just that I want to leave some to the kids to help them out, but it's a lot. And what the heck am I gonna do with this? This is life changing money. So I'm gonna take a whole different approach. It's not the numbers. My first one is people are telling you you're cheap. You're going out to dinner with people or you're going shopping with people, and they tell you you're cheap. That is a sign you might not be spending enough.
John: Yeah. Interesting. And especially when it's people that know you really well.
Bridget: I've never told you you're cheap😊 I wouldn't actually.
John: Well, it's funny. My reaction to that, Bridget, is, geez, I've been underspending all my life. I get people telling me that all the time. And maybe that's part of it too. It can be the mentality that we have, maybe that we learned from your parents, grandparents, or how you grew up. Being frugal or being a penny pincher, that sort of mentality, can be an admirable trait. And of course, it is good in some respects but not always.
Bridget: Right.
John: You’re making sure that you're not eating cat food sort of thing. Save money and be prudent with things. But at the same time, once you have achieved some sort of resources, things can change. And I love that word befuddlement, because just do smart things over and over again, then suddenly you look around and go, “Holy mackerel, look at all this money I earned.” It's kind of crazy to think about those things. And it is that feeling that I hear when I'm talking with clients about this stuff. And so, once you get to a spot and you go, “Hey, people are telling you you're cheap,” you go, “Maybe I should listen to that.”
Bridget: And it's not just one person. You have to assess the situation. The other thing is that I'm talking about your friends. I'll talk about your loved ones next. So your kids are telling you that you're cheap. Maybe you think about that and maybe you don't. Because sometimes kids feel entitled or what have you. But I would say if you've got more than one kid and they're telling you that you should spend more on yourself (and you could always ask them, “Hey, should I spend myself?”), that's another sign.
John: Yeah. I really love that one.
Bridget: Hey, we don't need it. Why don't you just enjoy it yourself.
John: As you talk about the kids, there are sort of two sides to the same coin. If your kids are telling you you’re cheap because you're not spending money on them and buying them stuff, that's sort of one feeling. But when you've got your kids saying things like, hey, why don't you guys take better trips or fly first class or whatever things are; spend the money on you, mom and dad. That's a sign. Their best interest might be for you not to spend, so they inherit more. When they're telling you to do that, that to me means, okay, wait a minute, let's think about that stuff.
Bridget: Yeah. And it's kind of interesting. Here’s a personal story. My dad passed away five years ago now. But when he was buying a new car, I was trying to get him to buy a BMW instead of a Ford. I thought, “He loves cars, and he would really enjoy this.” I've seen people who really like cars buy a nicer car, and they really enjoy it. This is not for everybody. You gotta like cars and then if you upgrade, you really enjoy it.
And so, there's a reason that I encouraged my dad to do this. At least in my mind, a lot of luxury cars are bought by older people. It's a nice thing to spend some money on if you've got it. But again, it depends on your personality. And he never went for it because it wasn't where he was at. He was a Ford guy. I mean, he sold Fords.
John: Yeah. It's interesting to ask how do you know that you might be underspending and have more capacity? And I'll take a step back. We've got one client who always talks about it being our first world problem, that we have too much money. Listen, it's different; it’s legitimate. There're real concerns. This is not a matter of wondering if you're going to make it. This is the second level, but it's still a legit thing. And at the same time, if you choose to do nothing, you don't optimize, but it’s not like the world crashes on you. So how do you optimize as opposed to how do you survive?
Bridget: Absolutely. What's your next sign?
John: Yeah, I love our conversations, because is that I tend to be so analytical about things. So one is leaving a big pot of money behind to your family when it's not your goal, the other one is just looking at how your net worth is growing. It's not necessarily tied to leaving it behind. You have to plan for contingencies and things like that, but at some point, you kind of look at how your portfolio grows, and the more zeros are in your portfolio, the more you have to spend. It’s what Einstein called the ninth wonder of the world: compound interest.
Bridget: Right.
John: And when you're still trying to limit yourself, trying to be frugal with things, while the dollars go up, there is an incongruence between what the reality is for your situation and how you feel about it. And to the extent you can step back and just look at the facts and compare it to the feelings you should do so. When those things aren't congruent, that can be a real sign, like when you've got that tension between how you feel and what the numbers have to say.
Bridget: Okay, so your first point was, look at your total net worth. And then the second point is look at how much your net worth is growing every year.
John: Yeah. And then particularly the investment side of things for folks that are in that spot. Not real estate and all the other things, but when those liquid dollars are going up, those are facts on that stuff.
Bridget: Right.
John: So just looking at the feeling of I should be frugal can be critical. We have a lot of our folks who become successful because they've been frugal. If reality and feelings are not connected, or not congruent in some fashion, however, that can be a reason to step back and go, “Okay, what are my goals? What is this money for if it's not for me to spend?” And we use the term intentionality a lot in our office. Saving the money while you're working and just putting your head down and going is how you become successful in many cases, but that's not an awesome way once you get to a spot of being able to utilize that money for whatever is best for you.
Bridget: Yeah, and so my last one is, your spouse is telling you this. Okay, so I am going to exclude spouses who have spending problems or are compulsive spenders. For example, I suspect my spouse might have a credit card that I'm not aware of. Or we fight about money, we're not on the same page about money. That kind of thing. And this I got from a YouTube episode that I watched by the Money Guys: “Honey, we just moved into a new place, we don’t need the cheapest possible blinds on the window. We need to decorate the house.” That type of thing. Issues with your spouse that could be resolved by spending more can be a sign. You want to think about that carefully.
John: Yeah. And again, I love those relational things. You get feedback from your spouse. You don't need to be a math person or look at the numbers to know how that's going. Same thing with your friends and kids telling you that you should spend more. You don't have to be an investment genius or a financial whiz to pay attention to this stuff.
Bridget: Right. And we're going to do another episode on what to do when you find yourself in this situation.
John: Yeah, that's the other thing. What do you do with this?
Bridget: That's going to be a lot of fun. So I think it's a great place to wrap up. I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois.
John: And I'm John Scherer. I've got a fee-only financial planning practice in Middleton, Wisconsin. Both Bridget and I are taking on new clients. So we'd love to hear from you if you're interested. But we're also both members of the alliance of Comprehensive Planners. And if you like what you hear on our show and would like to find somebody who thinks similar to us but lives near you, you can check out acplanners.org.
Bridget: And don't forget to subscribe.
At Sullivan Mermel, Inc., we are fee-only financial planners located in Chicago, Illinois serving clients in Chicago and throughout the nation. We meet both in-person in our Chicago office and virtually through video conferencing and secure file transfer.
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