Retirement: Going from Saving to Spending

By Financial Advisor Peter Egolf

One of the challenging aspects as you approach retirement is switching from saving to spending. On paper it sounds easy, but in reality, it can be paralyzing.

A frequent downside of success in life is that the skills and habits that made you successful aren’t the skills that will make you successful in the next phase. Ironically, your strengths may be what is standing between you and your future desires! This applies to investing.

The skills and psychologies that help investors build wealth do not translate to enjoying the wealth. What’s worse is that investors who have built significant wealth by saving can have the most difficult time utilizing their wealth. A wealthy prison of their own making!

I’ve worked with clients who’ve built multi-million dollar portfolios and feel stuck because they don’t know how to use their money. They are living well below their means and are living in fear of “running out of money.”

So, what do we do? We start by designing a financial plan to understand the numbers.

A financial plan will incorporate all of your desired goals, address potential risks (early death of one spouse, market underperformance, Social Security reductions, higher healthcare and inflation, etc.), detail cash flows, assess taxation, and determine the likelihood of success. We will analyze this in software that has tables and graphic visualizations that update as variables change. However, the numbers usually are not the problem, it’s psychology.

The next step is to understand the underlying reasons that are driving the behavior. Fear is a common driver, and one strategy is to build new habits that result in positive experiences with using money. For some people that is understanding what spending brings them the greatest joy – travel, dining out, visiting family. For others, it’s gifting assets to family members or charities.

We have clients try these habits on a small scale to start. Ideally, this happens even before retirement as it allows the client to build the habit of using their assets, while they still have employment income, which is psychologically easier. Thus, we can build a foundation of habits that can make the transition to retirement that much smoother.

If you’d like help designing and understanding your retirement financial plan including how to prudently use your investable assets, please send me an email at peter@onedayinjuly.com to schedule a meeting.