Why Spending in Retirement is More Difficult than You Might Think

Spending in retirement might sound simple, until you’re the one doing it. In this video, we’ll talk about why retirees often struggle to spend money even when their plan says they can, including fear of running out and market volatility. We’ll also cover practical ways to create a clearer spending framework so you can enjoy your money without guessing about every purchase.

Resources:

- Alliance of Comprehensive Planners: https://www.acplanners.org

- John's firm website: https://www.trinfin.com

- Find us on Facebook: https://www.facebook.com/friendstalkfinancialplanning

TRANSCRIPT:

John: Today on our show we've got a special guest, Chris Pollard, who has just finished his book, Untangling the Golden Knot. Chris, we're excited to have you on here to talk about what you wrote about in the book and some of the solutions you have for people. Why don't you give a brief background, introduce yourself and tell us how the book came about?

Chris: Sure, will do. Thanks for having me. It's good to see you guys again. One of the core memories for me is seeing people accumulate wealth and then not know what to do with it. Or save a lot of money, as if it was going to protect them in life from something bad happening, and then the bad things still happen. So, we had some beloved family members who would just save a lot of money, constantly, live frugally, not spend money, and still die young.

That’s kind of a morbid and downer way to start the discussion, but when you see that starkly, it makes you think differently. And then I saw some clients who had a very enjoyable life. So I had two clients die at the same time. It was like A Tale of Two Cities, right? One had died with a lot of money and not used it to better their own life or the lives of people around them. And one was very engaged with other people, highly connected to community and friends and family and using the money for a greater purpose, even though it was for themselves as well.

John: I love the action items. It's not just, here's the problems, it's what do you do about it? And when we were getting ready to hit the record, Chris, you shared an analogy about knowing how a car works versus driving a car. And that, I think, resonates with the question, what do you do? Could you share that? I would say it, but I can't remember exactly what you said.

Chris: Yeah, I mean, there's a big difference in knowing how money could make your life better and then actually doing something about it. So a lot of people will say, “All right, we're going to accumulate money.” And then the advisor will show a chart or a graph or Monte Carlo results or a cash flow plan or whatever it is and say, “Okay, we have a good financial plan. You're going to be fine.” We say that. And then the client says, “I don't feel fine.”

And the difference there is knowing how a car works is, oh, there’re gears that turn, and this thing could get you there, to, okay, let's get behind the wheel and let's start driving someplace trusting that the car is going to work. So I think as planners on one side and then also as clients on the other side, we need to come to that middle point. We need to somewhat know how the car works, the mechanics of it, but we need to have the courage to get behind the wheel and go someplace with it.

John: So how do you help people get behind the wheel of their money and actually use it? I see this all the time, and, Bridget, I suspect you do too. You've got this. I've done my own plan. I'm going to be fine. But then it's just weird, right? Part of the reason that I feel like I'm fine, a lot of our clients are fine, is because they're good at saving.

Now suddenly you're not going to make any money for the rest of your life and you're going to start spending. Of course, that's why you do it. I know that logically. But then only spending money. Wait a minute. That does not compute.

Chris: Right. And I think one of the ways that we can talk about some of that switch from, okay, we're going to accumulate money to now we can spend it, is thinking about what money truly is, which is a store of value. You work and then your employer gives you money. So you provided value for the employer, or if you were self-employed, and then you get money from that, and then you can take that money and store it somewhere.

And then eventually, as we're trying to grow money, we need to shift it back into value, from a store of value back into value, which would be, what do you want to do with your time and what do you want to do with yourself? I jokingly say to clients, “Nobody's asked you since elementary school, but what do you want to be when you grow up?” Now that you're grown up, you're about to retire, you're there, now what? That's one way of thinking about it instead of saying, “Oh, you could spend $200,000 a year, $100,000 a year, or $50,000 a year from your investment.”

Just telling someone a number tends to be unhelpful. They need a little encouragement on what to spend it on. And if you're particularly nervous, you're going to tend to not spend those dollars. So if we can ask a client, all right, if you were to look at your life and look at a couple different areas, and you tried to make those things ideal, what would that look like for you? So you don't do anything numbers based yet. We'll get there later. But in the conversation we're going to ask about a couple of things.

First, is people. So who's in your family? Who's in your friend group? Are you in a faith community? How are you involved in your local community or neighborhood? How do you build community with people? Who's around you? And if that were to be ideal when you're retired, what would that look like? If you feel like you're connected to your family and your friends, what would it take to do that? So somebody that's retiring will say, “Well, most of my, my friends are at work.”

This is a problem because suddenly their friend circle is going to go from a bunch of people to nobody, or maybe their spouse. That's a lot of pressure to put on your spouse, by the way, to go from having multiple friends to only one friend. Not good. And it's fairly particular to American males. It may be more global as well, but many men build relationships at work and not outside of work. Women, in our culture in particular tend to be better about building relationships both inside and outside of work. So we'll see like a drop off in social engagement.

So how can we encourage somebody. Okay, your friends are all at work. How can you maintain those relationships? Well, I should go to lunch with guys once a week or do something with my colleagues even though I'm retired and they're not. Okay, so when we look at your cash flow spending plan, your budget for retirement, we need to see on your weekly ‘lunches with friends from work.’

So we're taking a store of value, the money you saved in retirement, and we're applying it to something else you value, which is spending time with friends and having social connection, which by the way social connection is probably the number one determinant in satisfaction in retirement and thriving in retirement. So we're taking a store of value and turning it into something of value. That's actually what we do. So that's kind of that reversal. So we'll do that with people, with places. Where do you live? Where do you want to visit? What stuff do you need to enjoy retirement? Do you have hobbies? And we look at activities. How do you engage with people around you?

Bridget: I really like what you're saying. One of the things that I’ve found is that sometimes as a financial advisor, if I give clients permission, that helps them. I say, “You can fly business class.” And they might say, “Oh, I can't possibly do that. But I could not get a flight with a connection.” Something like that. “Okay, I can handle that.”

Chris: Yes.

Bridget: So it seems like there's a baby step. Okay, your project is to give 200 bucks a month to charity. That's what your project is, because you want to give money to charity, but you have this fear that's holding you back. This is my permission to do this. This is what I want you to do. It's interesting from my perspective that that seems to actually help clients. I don't have a problem spending. I'm not going to be that person. But I'm sure you guys see this too. There're plenty of clients who maybe spend too much.

Maybe I'm the only one that has that, and I'm trying to tell them to stop spending. But I also got a whole bunch of super savers. And they're great clients, because they've got plenty of money. But I don't want them to wait either because as they get older it, you don't know what's going to happen. They might be even less interested in spending than when they were younger. It might be even harder for them to change their habits than when they were younger.

Chris: Absolutely.

Bridget: So what are your thoughts?

Chris: Yeah, one of the things that I encourage clients to do is when you are young and healthy, do what you want to do, because eventually your body will say, “You don't want to be in an airplane for 12 hours to go visit XYZ country.” Your body just won't do it. And the desire to do that generally decreases. So if you have things that you've always wanted to do that require a more active person to do it, then you should do it while you're still active. And even if we front load expenses in retirement, it's pretty easy to skip a vacation when you're 87 years old.

Maybe you'll be a super energetic 87-year-old, but most of the 87-year-olds that I know tend to be a little more subdued in their energy level. So they might not want to just be doing international travel, walking on cobblestone streets. So do it while you're young. And we could always skip a vacation in the future. I'd rather you do it now and then skip it later. Or defer. If something's not going right in the portfolio, skip a vacation for one year and do it next year.

It's not like you have to always do this or not do it. That’s black and white thinking, which is another core aspect of the book. Black and white thinking really can mess with some of these spending dynamics. You can be flexible with your spending. I've always wanted to go to Italy or something. Then go ahead and do it. We got the money to do it. Let's do it. What would that look like for you?

Bridget: Well, here's another thing that came up with me yesterday with a client. They're in their later 70s, and they realized that it’s harder to plan a year in advance for trips.

Chris: Yeah.

Bridget: And definitely two years in advance, because they don't know what's going to be going on. And so, they're doing spontaneous trips. They took a spontaneous trip to Egypt with a month or two notice, and it was great. Usually, you would plan that a year in advance, but I went on one of those trips and some of the people were falling apart. And so, I thought that was a really interesting approach.

Chris: Yeah. And I think if we build flexibility into their spending plan, things are easier. Hey, we're going to plan ahead to spend this money. But when you actually implement the spending is up to you. Be flexible with it. It’s that flexibility, rather than black and white, I must spend money by this date. Let's not impose false deadlines on ourselves.

Bridget: I also think that framing the 80s as a time of inactivity might be doing our clients a disservice because I think that it's potentially a time of reflection. The people that I see doing more of life review thinking about how it all fits together. And it can be a really high meaning time because you really can think. I saw this with my own father.

He was really figuring out how his life fit together. And so that's different. It’s just a different kind of activity. And it’s less physically demanding generally. But I would say let's talk about that as a separate cool thing, instead of framing it as you're not going to want to do anything. It's a Barcalounger and the remote and you're done.

Chris: Yeah, right.

John: I was going to say, Chris, as you described it, when do you want it? When do you want to skip a vacation? Do you want to do it when you're 62 or when you're 87? It's that gray thinking, not black and white. So much of our world thinks, “Well, I want to know exactly how it works.” I'd love to do that, too, but we don't know. That's a really great visual. I really appreciate that.

Bridget: Well, I also think that just to be conservative, we underestimate how much a portfolio is going to grow.

Chris: Yes.

Bridget: And so that's one of the reasons why people are hesitant to spend money. And I think that's the way to go. I don't think that's wrong. But then again, in your 80s, you're probably still going to have the same problem.

Chris: Yeah. And I just kind of circle back to existential questions. I don't want to hit people over the head with existential dread, but what are the things that people tend to regret when they're in their 80s or later in life and they're kind of crystallizing the story of their life? What will they regret? It's usually relationship based, certain activities, sometimes career choices, but that's hard to undo later. A lot of it is something like, “I always wanted to do this.”

There’s some of that. And a lot of it is about relationship connection. So if we can say, “All right, what would be the things that you would do so that you have a fulfilled life and when you look back on it, you feel like you made something out of it?” And that's going to change over time and our perspective will change. And we have to have room for that perspective change. We have clients who when their kids are young think, “I'll never give money to my kids. They're never going to go to college.”

Then they change to, “Oh my God, I got to leave all my money to my grandkids.” When you work with clients for more than a decade, you'll start to hear those changes. So have room for those changes, but also have an eye for, okay, let's build flexibility into the plan but also do the things that are stage appropriate.

John: Hey, we could keep talking about this forever. What a great topic, Chris. Thanks. But we got to get things wrapped up here. Our guest is Chris Pollard, the author of the book Untangling the Golden Knot. We'll put a link to the purchase information in the show notes.

Check it out to learn more about this great information. Chris, thanks so much. Maybe we'll have to do a follow up episode and dig into a couple of the individual things that we talked about. My name is John Scherer. I run a fee-only financial planning practice here in Middleton, Wisconsin.

Bridget: I'm Bridget Sullivan Mermel. I've got a fee-only financial planning practice in Chicago, Illinois. We're all members of the Alliance of Comprehensive Planners or acplanners.org. Chris, where are you located?

Chris: I'm in New York.

Bridget: New York. Upstate?

Chris: Yeah, I'm just outside of New York City.

Bridget: York City, so feel free to contact one of us. But you can check out acplanners.org if you're interested in in person meetings with someone in your area.

John: And don't forget to hit that subscribe button.

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.