Shifting gears is never easy. Habits made are hard to break.

I have been writing a bit about life transitions of late. (See here and here.) One of the biggest transitions we can go through in life is retirement. This comes without a lot of changes. The biggest change maybe going from a saving mindset to a spending mindset.

Money isn’t a number on an account statement. It represents opportunity. Opportunity created by hard work. Many retirees are not taking advantage of that opportunity. Tammy La Gorce in the New York Times:

But while retirees who live extra cautiously may be securing the sense of contentment that comes with having the resources to deal with sudden expenses like long-term care, they may also be sacrificing quality of life to do it.

The financial services industry is built around the idea of asset accumulation. Retirement is about shifting gears. Going from accumulation to decumulation. This is scary. As my colleague Kris Venne wrote:

As financial advisors we spend a ton of time collecting client’s goals for “the future”. I am certain that most financial planning software is literally overflowing with goals that clients will never bother to act on. Not because they can’t afford to, but because nobody is pushing them to pull the trigger.

Can you imagine spending 30 years doing something regularly, having it work out really well, then one day be expected to start doing the exact opposite?

Or said another way, from the paper Spending in Retirement: Determining the Consumption Gap:

Retirement income conversations may need to move away from sustainable withdrawal rates toward strategies that maximize spending for a given level of financial assets, while addressing client concerns about uncertainties. A shift of this nature would require less focus on asset management and more attention on income management to ensure that clients receive the highest possible satisfaction from their accumulated retirement wealth.

The fact is that many retirees, upwards of half, are afraid to dip into their savings. They rely on current income to fund consumption. Their fear that they may need these funds at some point in the future is palpable. Nobody wants to be a burden on someone else in the future.

As retirees age their capacity for spending changes. An elaborate overseas trip at age 65 may not be physically possible for someone at age 85. In a conversation with Chrisine BenzJoel Dickson of Vanguard stated:

One question is whether that spending can be shifted a little bit early. So maybe you spend a little bit more in early retirement years when you may be more able to do that, recognizing that your spending will probably adjust automatically or you may adjust it based on resources as well later in retirement.

Retirement is a dynamic time in your life. Spending choices and market moves can have a big impact on your financial situation. Financial advisors provide many services, but this may be the most important. Giving clients the confidence to spend their hard-earned money in retirement. Isn’t that what we are all working towards?

Print Friendly, PDF & Email

This content, which contains security-related opinions and/or information, is provided for informational purposes only and should not be relied upon in any manner as professional advice, or an endorsement of any practices, products or services. There can be no guarantees or assurances that the views expressed here will be applicable for any particular facts or circumstances, and should not be relied upon in any manner. You should consult your own advisers as to legal, business, tax, and other related matters concerning any investment.

The commentary in this “post” (including any related blog, podcasts, videos, and social media) reflects the personal opinions, viewpoints, and analyses of the Ritholtz Wealth Management employees providing such comments, and should not be regarded the views of Ritholtz Wealth Management LLC. or its respective affiliates or as a description of advisory services provided by Ritholtz Wealth Management or performance returns of any Ritholtz Wealth Management Investments client.

References to any securities or digital assets, or performance data, are for illustrative purposes only and do not constitute an investment recommendation or offer to provide investment advisory services. Charts and graphs provided within are for informational purposes solely and should not be relied upon when making any investment decision. Past performance is not indicative of future results. The content speaks only as of the date indicated. Any projections, estimates, forecasts, targets, prospects, and/or opinions expressed in these materials are subject to change without notice and may differ or be contrary to opinions expressed by others.

Please see disclosures here.

Please see the Terms & Conditions page for a full disclaimer.