Afraid to Spend in Retirement? How Financial Planning Can Help You Spend Confidently

You may think financial advice
is just about saving more.

What if your biggest mistake in retirement
isn’t spending too much?

It’s being afraid to spend at all.

Let’s chat.

My name is Gina de Girolamo.

I’m here today with Matt Mundo.

Matt,
I’m excited for our conversation today.

Thanks for joining me, as always.

Yeah. Let’s get into it. Absolutely.

So like I mentioned,
we’re going to be talking about

how to encourage retirees
to have confidence

in their spending
as they approach that new phase of life.

So as you know, we’ll sometimes get asked
what’s the number?

How much do I need to retire?

Why is that not always the right question?

Well, it’s such a good question.

In many regards. Right.

And oftentimes, you know, here
we we take a detailed look at cash flow.

So we’re trying to match expenses

with the amount
that a retiree or potential retiree saved.

But but what can happen
is that, you know, often

people will accumulate more wealth
and they’re able to spend.

So their spending might be less
than what could be optimal

or optimized for the amount of assets
that they’ve saved up.

And I think that’s human nature.

I think people

tend to think that they’re going to live
maybe some reduced lifestyle.

You know, you need a little bit less.

You’re not driving to work, buying work
clothes, maybe,

not going out to as many lunches,
those kind of things.

And perhaps they’re
sacrificing the potential to travel more.

Engage in more hobbies, do more things
than they think would be possible.

So let’s say you’re talking to a couple
who’s mid to late 50s.

They’re gearing up to retire
in their early 60s.

They have had careers at full speed.

You know, they’ve
they’ve had this working life.

And now time becomes a really big asset.

How do you encourage
someone to use that time wisely

and use the the wealth that they’ve
built up on valuable experiences?

Yeah.

So I think, you know,
there’s a couple of things, you know,

so we can encourage, through our words
as much as we want.

I think a lot of times
we want to prove it to a client

through cash flow
planning, through financial planning.

So it’s really getting them to think about
what would be an appropriate

vacation budget.

So if we just have a line item expense,
you know, general expenses,

living expenses on a cash flow statement,
how can we break that down further

and perhaps add a separate line item
for trips, for vacations,

for hobbies, for different things
that they want to do in retirement?

They’re just not sure.

So again, encouragements. Great.

A lot of times we do want to encourage
clients, but what’s one step better?

It’s actually showing them it’s possible

and that that there can be money left over
if that’s our goal.

If inheritance is a goal of if,

charitable giving is a goal
at the end of life, showing them

that both things can be achieved through a
well thought out financial plan.

Yep, yep. That’s awesome.

So if someone might be apprehensive

to that, right, you’ve you’ve saved
and you’ve saved and you’ve kind of

had this moving target in your mind of
this is the day I retire.

And I think it’s so common
to just have that goal,

but not think about what happens
after that last day of work.

So how do you help the mindset shift,
not only from a cash flow perspective,

but just
I mean, that’s a big change for someone.

Yeah, yeah, I think a lot of people head
into retirement and

think of it as an event,
but it’s really a stage of life.

You know, odds are you’re going
to be retired for decades. So.

So there is a long term,
aspect of retirement.

I think people really need to reframe
that.

Like, this isn’t just an event.

This is something
that you’re going to head into.

And I think the more that people can think
about their retirement

as opposed to kind of like, hey,
I’m escaping work, but really I’m running

to this next phase of life.
And what does that mean for me?

What does that mean for hobbies, travel?

What am I gonna do with my time?

How am I going
to feel fulfilled in retirement

as opposed to, hey,
this is just kind of the next thing.

I’m in my early 60s
and I just don’t want to work anymore.

I want to be done. I can’t stay on my job.

How can you how can you think about this
to be more fulfilling?

Stage of life.

So you mentioned retirement is a journey.

It’s not just one day right.

There’s multiple stages.

And what we often see
is that people might delay spending early

in retirement
to save for this down the road.

Potential expense.

How do you help people
and kind of coach them through

spreading out their spending
over the course of their retirement?

Yeah.

So there’s a few ways
I think, like in a simplistic sense,

you know, we really can monitor
spending relative to portfolio size

by way of just looking at distribution
rates up from the portfolio.

So so if you take out, you know,

$10,000 in your portfolio
is worth a $100,000,

or you take out $100,000 in your portfolio
worth $1 million.

Both of those are 10% distribution rates.

Now, if your portfolio is worth $1 million
and you take out $5,000,

that is likely really, really,
you know, relatively speaking,

very small relative
to the portfolio balance.

And you can kind of extrapolate that
based on larger balances, larger spending.

So we can really tell over time
if somebody is taking out,

less than what they could just by way
of a distribution percentage.

That’s a really simplistic kind of rule
of thumb, not an exact science.

The other way, again, is through,
you know,

we keep coming back to comprehensive
financial planning,

looking at multi-decade
cash flow statements.

We can run those at,

you know, I would say
pessimistic rates of return or market

return assumptions and figure out, okay,
at the end of this, if this all plays out

the way that we’re planning it
to play out, what’s left at the end,

because we do recognize that somebody,
you know, sitting on their proverbial

deathbed, taking their last breath,
opening up their last financial brokerage

statement and saying, wow,
I have $15 million in my account.

And that’s, you know, 80, 90.

How much do they forego to achieve that?

And was that their optimal result?

Maybe it was for some people,
but it’s certainly not for everybody.

Yeah.

Let’s kind of flip the script
and talk about people that are maybe more

in the accumulation phase of their life
and thinking about their retirement

and that magic number that they want
to have on the day that they retire.

Would you ever or have you encourage
someone, maybe to save less

knowing what their spending is
or to always save more?

What does that look like
in the accumulation phase?

Yeah.

You know, it’s so interesting right.

Because more is always better than last.

But but that’s not always
the right answer.

You know,
we do look at how people are saving.

Right. So there is a,

a lot of, I would say,

diligence done around
saving too much in pretax assets.

And that gets into a whole separate
topic of tax planning and retirement pre

pre-retirement post retirement.

But that can be a very real thing
where we make active recommendations

to change the nature
of some of that retirement saving.

Yeah. That’s that’s a big one.

Certainly
I think people should be aware of that.

They’re, they’re not necessarily aware of.

But I will say, you know, for people
who are maybe a decade

or two away from retirement,
I think of home purchase.

So some people may think that they’re not

totally sure that they can afford a home,
one home versus another.

I think that that’s kind of one of those
lifestyle things we can really talk about

and try to plan for, and maybe we can
encourage someone to buy a bigger house,

that they might think
that they can afford,

kind of based on where their trajectories
going that that they may not be aware of.

Yeah.

And the comprehensive planning
and understanding each piece of it,

not just cash flow
or not just investment performance,

but the looking at it from a tax lens
and a retirement lens

and all of these different areas
is is very, very important.

Yeah.

So if you were to give

a piece of advice
or one key thing for someone

approaching retirement
and they’re thinking about their lifestyle

and how they can enter
into this new phase,

what would that what would that be?

Yeah, I mean, I think you want to hit
the ground running.

So I would say pre-retirement
really think about what you want to do.

You know, in that that could be like
leisure activities, right.

Vacations. Do you want to take
the grandkids on a trip?

Do you want take your family on a trip?

Is that going to be a goal of yours
to take your family on a trip,

enjoy wealth with them
if they’re going to get it anyways?

When you when you pass away.

The other thing
I always think about too, is to the extent

you have any home projects,
you might want to knock out big ticket

items, it feels a lot better to do
some of those bigger ticket items

while you’re working,
while cash flows coming in.

So I like to encourage people to do
those things to kind of pre-retirement.

I think it’s

a nice kind of segue into retirement,
having those things checked off your list.

For someone that might be apprehensive
to spend in retirement,

what is the opportunity cost
by doing that.

Yeah. I mean it can be significant, right.

So nobody knows what the next card in
the deck is health wise.

Right.

But there can be certain
experiential trips,

you know, let’s take the vacation example.

There can be certain experiential trips
that you might not get the same value

out of. Should you wait?

So if you want to hike,
if you want to go to Europe and hike,

you’re probably going
to be more likely to do that

if you’re in good health at 65
and if you’re at 75.

Another great example would be
if a goal of yours was to take

your grandkids to Disneyland,
and they’re currently five and seven.

If you wait ten years,
are you going to get the same experience

when they’re 15 and 17 versus the magic of
Disney World at five and seven?

So I think that those are the things
that people really want to think about.

And that’s where we really want
to encourage people to do these things

while they can, because nobody knows
what the next card in the deck is.

And those types of experiences
have tremendously

more value earlier than delaying them.

Another ten years to you
till they until this, you know, retiree

comes up with that theoretical number
that they had in their head,

at which point
they would decide they had too much money.

Yeah.
So how do we

how do we give people permission to do it
now, as opposed to them

waiting for something down
the road that may never materialize?

I think it’s all about encouraging people
that their portfolio

is more than just a number.

It’s about the life

that you want to build for yourself
and the lifestyle that you want to have.

Yeah,
and that’s kind of our role as financial

planners, consultants in this experience.

Right.
You know, it’s like running a marathon.

I would never encourage you to sprint out
at the beginning of a marathon either.

So we don’t want to necessarily overspend,

but we also don’t want to get
to the end of the marathon.

And we’re the last 100 yards
and we save so much energy

because we want that
we can sprint across the finish line.

We want to find some happy medium.

And that’s really what the goal I think
of financial planning is for retirement.

and having a partnership with an advisor
is very important to bounce

those ideas off of and create that bucket
list to make sure that they get done.

Because a lot of times

we’ve seen people procrastinate
or push it off or say, maybe one day,

but a lot of times we can give you
the confidence to do it now.

Yeah.
And we always use the GPS analogy. Yeah.

You know,

we’re heading on a trip and the GPS
and that’s what the financial plan is.

And we’re going to constantly reroute
as circumstances change.

So financial planning isn’t just a
one time thing that gets put in a binder

that says you can retire, you put it away.

This is a really iterative process
that occurs, you know, sometimes

multiple times a year.

But at least every year where
we’re reviewing, okay, where are we at?

How do the markets help us?

Advance our retirement?

How much should we spend that
we do? A little more than we thought to.

We do less.

What’s what’s
what are we going to plan for next year?

Those types of things
I think were financial

planning as a tremendous amount of value.

Absolutely. Well,
this has been a great conversation.

Thanks, man.

No problem. Thank you.

Absolutely
and can’t wait to chat again soon.