Join us today for tips to maximize your spending in retirement when you saved more than you can possibly spend.
I'm retired and I somehow have more money than I know what to do with. What do I do and how do I spend more? This is question we get from clients who have saved their whole life and now find themselves in retirement with more money than they can possibly spend.
This week on Friends Talk Financial Planning, we discuss strategies for spending more effectively in retirement, especially when you find yourself with more resources than anticipated. It is important to be intentional about spending and use your accumulated wealth meaningfully.
Start by reviewing your net worth and portfolio growth to gauge how much you can afford to spend. Many retirees see their investments grow faster than their income while working. Setting a budget for extra spending, such as charitable donations or personal luxuries, can help to avoid accumulating wealth without purpose.
Test new spending habits gradually. For example, donate a small amount regularly to charity or invest in experiences that align with your values. Enhancing what you already enjoy spending money on, such as upgrading your health club membership or traveling with loved ones, can also help you make the most of your retirement years.
Giving yourself permission to spend can be a challenging but rewarding process. If you have the means, don't be afraid to spend more to help you enjoy retirement to the fullest!
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
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TRANSCRIPT:
John: On today's episode of Friends Talk Financial Planning, we're going to discuss how you can spend money more effectively in retirement and maybe spend more than you originally planned for, if you find yourself in that fortunate situation. Hi, I'm John Scherer, and 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 get into tips on how to get you to spend more, please subscribe. It'll help other people find us. Okay, John, let's talk. What’s your first tip?
John: Yeah, let me kind of give some framework on things. Because wait a minute, spending more, we're supposed to not spend; we’re supposed to be frugal. And we did an episode recently talking about how for a lot of people, yes, you need to be frugal, but when you've sort of won the game, continuing to be frugal is just not optimal. It's the wrong thing to do, but how can you maximize the dollars that you've saved up and make it meaningful for you, for your family, for your community? So the topic is, hey, if I have more capability to spend and I'm not doing it, that's not necessarily the best way to live.
How do we think about that and be intentional about that? And you know me, Bridget, I like to look at the numbers and facts. And for me, one of the tips about how do I do that is literally taking a look at how has my net worth grown, how have my investments grown over the years? And we see folks whose growth in their net worth on an annualized basis is more money than they have ever made when they were working in any one given year, which is of course part of our goal: save up enough so that our money makes more money than we can earn. And at the same time, it's just really mind blowing.
I mean, it's just crazy to think about, oh, my net worth is this much more than it was last year, even after I'm retired and spending money. And it's this disconnect psychologically of, wow, how does this happen? So one of the things about spending more is recognizing where that goes and then being intentional about saying let's have a budget above our regular spending; we're going to look at doing things, whether it's charitable work, if that's something that resonates with you, whether it's giving money to family members, doing some gifting, or maybe just spending a little bit more. I need to buy some first-class plane tickets instead of sitting in economy.
But to have sort of a budget on an annual basis, we'll take a look at folks and say, listen, at the conclusion of this year, what happened last year. We’ll actually take a look maybe what happened over the last three years or five years on an average because a couple of years ago everything was down. Net worth was maybe flat when you take into account real estate. So we just take a look at where were some of the numbers. And setting a budget for future spending based on what's gone on can be one tool in just looking at the hard numbers to go, “Okay, here's what I have the ability to spend going forward.”
Bridget: Yeah. Here's another situation I've seen. Sometimes people have good savings and are fine for retirement, but then they come by some money (inherited or whatever) and then they think, “My habits are set. What do I do now?” And I like your idea of trying a budget or some kind of goal. For instance, one thing I suggest is if you're charitably inclined, start giving away a hundred dollars a month (or some kind of stretch, whatever is a stretch for you) and see how it feels. And start doing it regularly to see how it feels. And then you can look again.
Make sure you're still on the budget. You're not trying to go crazy. But see how it feels to live a little bit larger in the things that you really want. It's like you're not trying to upset the apple cart, but what you're trying to avoid is your nest egg growing rapidly in retirement. And then you got choices like, okay, do I give it to kids? Do I give it to charity? If you're not intentional about it, somebody's going to be. You might as well make the decisions, not somebody else. And I love the word intentional.
For most of the people that are in the situation, the reason they got there is because they were intentional about their spending all along. It’s not that they were depriving themselves, but that they were intentional about it. And, so this takes, again, some intentionality and a switch in perspective. So I like your idea, and I second that. Every month, every week, giving away more, if that's your intention. My first tip really is to focus on what your values are and say, how can I express those values?
So some people value benevolence and giving money away, or just giving. And people admire that the most. And so, then I think people think, “Oh, giving is the best.” But maybe that's not your number one value. You might be a creative person. You might like to enjoy life to the fullest. You can have different values than just giving that are also awesome. But if you want to incorporate more giving, you can say, “How could I express these other values through my giving?” A big value for me is being independent. So if I want to give more, I can say, “Okay, who's got problems with that? Who could use some help becoming more independent and focus my generosity on that type of person.
John: Yeah, I love that idea. Some folks appreciate or value benevolence for the sake of benevolence—being kind, giving money and resources to others that don't have that. But for you it’s independence. Well, great. Let's focus on that part. It’s not necessarily the giving money part, but saying how can I help people be more independent? And focus on those goals, whatever those things are, whether it's food insecurity or something else. Think about the cause, not the what, which is giving money and time away.
I realized one thing as we started this discussion, Bridget. I have a question for you. It’s something that we deal with. As I described, sometimes those numbers suddenly get bigger and bigger, and it feels weird. Sometimes I don't even know that I could give more money away, whether it's to friends or family or charities. Okay, now I know. But then that idea of how do I make that mental jump? It's a lot of money. If my portfolio goes up six figures a year, giving $5,000 to somebody's a lot of money. And how do I get myself to believe that I can do that?
You spend a lifetime being frugal and then changing that can be so hard. And I'll just say that the only thing that I've seen has been successful is viewing it as a process. It's not like saying, “Oh, I can do this.” And great, I turn around and start writing great big checks to kids and the charity tomorrow. It's more like saying, “Oh, start thinking about how I'm in this spot and I could maybe do this or that and start building up that muscle over time.” But it's still such a challenging thing. And I don't know if you've got anything that you use tools or thought processes with clients.
Bridget: Well, I agree exactly with what you're saying. There's a sense of befuddlement. We talked about that in our other episode. There's a sense of befuddlement about the whole thing. And maybe guilt or weirdness because we think, “It's great fortune, but how did this happen? There're so many people who are suffering, so how is this happening to me?” But recognizing it and starting somewhere is critical. And there’s another thing I like to tell people. I got this idea from the guy who wrote, I Will Teach You to Be Rich, Ramit Sethi.
And I don't agree with everything he says, but one of his points is look at what you enjoy spending money on or what you like, then just try to enhance it. Okay, so this happened to me, and I don't really struggle with not spending it up, but this is an example. I was talking to my brother-in-law who was saying that he belonged to more than one health club. And I thought, “That's weird. Why would you do that?” For me, belonging to one health club is a luxury as far as I'm concerned, which I enjoy. But he mentioned the silver sneakers program through a type of Medicare. Who even knew? But that got me thinking, the thing that I enjoy the most in my life right now is working out. I just like working out.
I don't really like a lot spending money on a lot of things, but that is something that I can try to enhance. For instance, it gave me permission to say, “Okay, I have my regular club, but then there's another place that I can book tennis courts and then I could take a class at another place.” All right, so I'm involved in three clubs. Are you kidding? This is not me. But it's focused on who am I? Another tip is bringing other people along. Say you like travel. Okay, well, how could this be better? Well, maybe if I invited your relative, somebody I like traveling with, and just said, “Okay, this is my gift to you.” That can enhance the experience for everyone, and it enhances your life.
John: Yeah, and it goes back to being intentional. What do I enjoy spending money on, how can I make that better, and how can I do that? One thing that popped into my head as you were talking is, connect with other people and have these discussions. You kind of know where your friends are or family members are and go, “What's useful?” I just really love that idea for you. Wait a minute. One health club's a luxury. Three? This is something that you go, “Oh, I never considered that I could have done this. Cool, I'm going to do that.”
Or maybe you say, “Oh, I never considered you could do that. Yeah, I'm not going to do that.” But the times you have regrets are when you didn't consider that you could do fill in the blank. Whether you do it or not, that's a really healthy way to do things. Pay attention to what other folks are doing and make those connections and see how you might apply some part of that to your life. That can be a really helpful way to figure out how to maximize your resources.
Bridget: And with people who are traveling, I'm often trying to give them permission to upgrade. I'll say, “Fly first class.” And they’ll say, “Oh, I could never do that.” But then they'll come back and say, “Well, I did book direct.”
John: Yeah.
Bridget: “And that cost me a decent amount of money.” Or they’ll say, “We got extra leg room.” And to me, that's a win.
John: Baby steps, right?
Bridget: Yeah, exactly. Giving people permission seems to help. It's just like if your doctor tells you to do something. If I tell them to do that, they might listen. People ignore my advice all the time, so…
John: But having an expert say that can be helpful.
Bridget: Yeah.
John: Hey, I think that's a great place to wrap up this discussion. And again, 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. If you're interested in finding a financial advisor, both John and I are taking clients. If you want to find an advisor that's in your area who thinks like us, you can check out acplanners.org.
John: And don't forget, 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.
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