Why Are Retirees So Afraid to Spend Their Money?

In today’s episode, you’ll learn more about:

• Why nearly 40% of retirees struggle to spend their savings.
• The shift from saving for retirement to spending in retirement.
• Real client stories about relocating and helping adult children financially.
• Why regular planning reviews create confidence.
• How a good advisor helps clients evaluate options and make better financial decisions.

Listen Now:

The Smart Take:

Go Inside the Episode: 

0:00 – Intro

2:26 – Can You Afford This?

4:09 – Clients Situations We’ve Worked Through

12:48 – Are You Still on Track?

Learn more about the Retire Smarter Solution ™: https://www.truewealthdesign.com/ep-45-retire-smarter-solution/

Sign up for our newsletter on our podcast page: https://www.truewealthdesign.com/podcast/

Have questions?

Need help making sure your investments and retirement plan are on track? Click to schedule a free 20-minute call with one of True Wealth’s CFP® Professionals.

Subscribe:

Click the below links to subscribe to the podcast with your favorite service. If you don’t see your podcast listed with your favorite service, then let us know, and we’ll add it!

• YouTube
• Apple Podcasts
• Spotify
• TuneIn
• Amazon Music

The Hosts:

Kevin Kroskey, CFP®, MBA – About – Contact

Tyler Emrick, CFA®, CFP® – About – Contact

Episode Transcript:

Tyler Emrick:

Today, we’re talking about an obstacle that seems to come up almost weekly. A recent Allianz study found that nearly 40% of retirees struggle to spend their savings, even after decades of working hard and building wealth. So what gives someone confidence to actually enjoy retirement? Today, we’ll walk through the four questions we help clients answer every day and how those conversations help retirees move from uncertainty to confidence.

Walter Storholt:

Hey, welcome to another episode of Retire Smarter. I’m Walter Storholt alongside Tyler Emrick. He’s a certified financial planner and a chartered financial analyst at True Wealth Design. And we’ve got a great episode on the way today to talk a little bit about this good problem to have, Tyler, of-

Tyler Emrick:

Spending money, Walt. Spending money. Come on, [inaudible 00:00:54] spend that money.

Walter Storholt:

… spending money. I need to spend it, but I’m kind of afraid. So in order to be afraid of maybe spending that money, you got to have some money to spend in the first place. So we’re starting from a position of strength, but this is a very real problem. You said it in your intro that you’re seeing this pretty much every single week, someone coming in to meet with you and the team at True Wealth Design, and they’ve got this sticking point. They’ve got this obstacle.

Tyler Emrick:

We do, right? And it’s the transition. It’s a huge life transition when you start thinking about retirement in general. So when you get down in the nitty-gritty of the whole confidence making that decision, I think that’s where a good advisor can certainly come in, step in, have a good conversation and help lead a productive conversation around it. I mean, we always lean on these studies. I think I mentioned it earlier about the Allianz study on the lead end, so we’re always trying to look at some of these challenges that the broader public is saying, “Hey, we’re having issues with this.” I mean, 40% of people struggling to spend their retirement savings. And then we see those studies and then we see it in real life. It’s like, “Well, hey, maybe there’s something here and something that’s really important to us to focus on as we think about working with the individuals and families on a year in and year out basis.” So a fun conversation, something we have a lot. Pretty excited to be able to share it, right?

Walter Storholt:

Well, I know you’ve got four questions that’ll help retirees sort of move away from this uncertainty and this fear of spending money to a little bit more of confidence and operating from that position of strength. So you want to dive through those?

Tyler Emrick:

Yeah, I think that’s a good start. So when I think about the questions, and this is probably one of the ones, and if not the most we get, it’s certainly up there. Can we really afford this? Getting down to that idea of like, “Hey, we got this big life transition coming up. Are we ready for it?” And that comes from not only, “Hey, have we done a good job saving, accumulating our wealth?” I mean, honestly, I think a lot of families that come in and get to this point of saying, “Hey, are we ready?” Have probably done a pretty good job saving. I mean, starting to see account balances going up, you probably have lived well within your means for a long period of time, but that transition point and starting to actually pull from it’s a big deal. I mean, we see it come up even just in the decisions that you have to make around retirement.

Let’s back up and not think about the whole big decision about retirement, but even something like kicking in Social Security, Walt, it’s a lot easier to use that money that we perceive as coming from somewhere else as opposed to, “Hey, let’s pull the same distribution out of our 401k account and actually use that wealth that we’ve started to accumulate.”

So we see this almost fear or this uncertainty rear its head in a number of ways, not just like with the big questions, but we see it trickle down into some of the more granular decisions that our retirees are making on a year in and year out basis. But starting with that big question, can we really afford this as a big one? And once we get to a point to where we gain some clarity around there, that second question that we wanted to touch on is like, well, hey, what is the smartest way to do it? Always is next in succession.

So I kind of look at them as a pair. And as I think about, well, or I thought about the podcast today on, well, how are we going to talk about this topic? Or how do we want to approach these big life questions that retirees are coming to us with? I kind of though back into a few situations that we’ve worked through recently to kind of help illustrate that point a bit.

So the first one that popped into my mind is a family that we’ve been working with for a while now over the last year had some big changes, as with anything. The situation that kind of came up is in their meeting last year, they brought up the point of like, “Well, hey, our kids are nearby. Would it be possible for us to move to where they’re at?” I mean, this is a situation that happens fairly often. Their children had gone off, graduated college, got settled into careers, and those careers weren’t here in Northeast Ohio. So then the question becomes is you go through these financial plans each year, you start communicating maybe how well of a situation that families are in and you start thinking about, well, how can I use that wealth to enrich my life? And inevitably, being closer to family is one of those things that pop up quite a bit. And that they found themselves in that boat.

But when you start to unpack that question a bit of like, well, hey, can we move to where our kids are at? I mean, there’s a lot of considerations and decision points are in there. They had done some pre-work already and kind of been around the area. They were lucky enough to where both their children were in the same area down south and they had spent some time there and were like, “We could really see ourselves moving down there.” They got comfortable with being in the area. And I think that’s what kind of really got them to the point to where they started to trigger and ask us this question.

So in my mind, when I get a big question like that, we want to kind of start to think about it in sections and have it build off of each other. So the first thing that kind of popped in my mind was, “What does this transition look like? Are you going to be keeping your house up here? If not, what does that look like? Are you going to sell it? If you sell it, how does that impact your overall plan and what assets are we potentially bringing into the plan to help us with that transition?” Because inevitably, if you’re making a big move, Walt, you got to kind of figure out and say, “Well, what is our budget for this new house? What are we looking at?” And a lot of families have a substantial amount of wealth in their residences or their homes.

So we talked through that situation and they had a pretty good idea of what they though their house would be able to get and they maybe didn’t know what that process looked like. Some of the intricacies around, what are selling costs? Do we use an agent? That type of thing wasn’t there, but they felt like they had a pretty good idea on what they could sell the house for. So we were able to kind of take that information and all that work that we had done prior about the plan. Well, us financial advisors love that because when we can kind of plug that in and start to say, “Well, hey, if we get X for the house, what could we likely afford when we think about what that next place would be? And how does that impact all the other decisions and all the other financial things that you have going on?”

And you can have a very constructive conversation on, “Well, hey, what if we stayed in this budget? What if we ratcheted up? What would we have to give up?” And that back and forth, I think really helped that family kind of decide on like, “Okay, if we were to do it, this is the type of house that we would be able to look into.” Then they were able to kind of go back and say, “Well, we’ve already kind of started if we’re looking at houses in that area. This seemed to match up pretty well. I think we’re going to be able to get what we want in that area with the budget that you’ve set for us.” So as this big overarching question of like, “Can we really afford this? All right, I think we can. It fits in the plan.”

So those conversations are really good at the beginning, but then how they’re linked to each other is like, “Well, how does this work? What’s the smartest way to do it?” So once we kind of got that go ahead of “All right, I think we want to do this. This is our budget. We can work within it.” Well, what are all the intricate decision points that we need to make to make this effective? And those decision points are everything from, “Hey, how do I put my house up on the market? Should I use a realtor? What are typical costs? Should we shop around? Hey, do you have any referrals of realtors that we could use?” To all the way going down, “Hey, do you have anybody connected in the state that we’re looking at? And how does that impact our financial situation?”

When I think about that, the big thing here in Ohio, Walt, is we have pretty decently high property taxes. They were actually moving to a state to where their property taxes were going to go down about 10 grand a year. That’s not insignificant.

Walter Storholt:

Oh, wow. [inaudible 00:08:52].

Tyler Emrick:

I mean, that is not insignificant at all. Now, where they were going had some other challenges where maybe there was an HOA likely where they were going to be. Insurance on their home was a little bit higher. But we were able to kind of hash that out and I was very familiar with the state that they were going to. So from an advisor standpoint, we were able to drive and have a very productive conversation around, “Okay, what are the things that are going to impact our financial plan when we kind of settle on and finalize where are we at?” In their particular situation, they actually, over the first six months, they started looking for houses down there and decided, “Hey, they found a lot and they’re going to build.” Okay, great. Well, that’s changed.

Walter Storholt:

Not part of the original plan, but here you go.

Tyler Emrick:

Here we go. Well, “How does that work? Do I need a construction loan? What are financing rates on here? We haven’t quite sold our house up here yet in Ohio. We’ve got it on the market. Well, does that slow things down? Can we go ahead and purchase the land that we want to? And if I do that, where’s that money going to come from?”

So now we’re getting down to those types of questions in their scenario, Walt, where it’s like, hey, these are kind of granular. These are some of the things that are going to very much impact their wealth, but they’re looking for us not only to head those off, help them understand what are the decision points and how does this work? They’d never built a house before. And then, well, two, do you have the professionals and do you have the systems in place to be able to get these put in?

Financing, for example. Hey, we shopped around the lenders for them. We talked to them about their options around rates. “Hey, should we do more in closing costs or less in closing costs, higher rates?” These are all things that aren’t on your average radar, I don’t think, unless you’re moving on a year in and year out basis, Walt. But this big overarching concern that they had, I think it popped in my mind as a great use case as we kind of think about this whole idea of, how am I going to use the wealth that I’ve accumulated in its best way, shape and form? And then how does a financial advisor take that idea, hash it out within the framework of their financial life and then once they get comfortable with it, all right, what are the decision points and how do we move things along to help through that process and head things off? I mean, I think that’s exactly where the financial advisor piece fits into this pie. So it gave them confidence, but it also helped them accomplish and actually do some of those tasks that need to get done.

Speaker 3:

What would your life look like if you designed it around your true wealth? It’s a powerful question and one that true wealth design helps individuals, families, and business owners answer every day. With a fully integrated approach to financial planning, tax strategy, investments, and business advisory, their team can bring clarity and confidence to every part of your financial life. Take the first step toward a stronger financial future with a no cost, no obligation discovery meeting. Just click the link in today’s show description to get started.

Walter Storholt:

And as always too, it’s like, hey, we can do this, but now what’s the right way to do it? What’s the smart way, as you put it, to do it, the efficient way? No wonder you spent so much time on that piece of this puzzle because it’s that important.

Tyler Emrick:

Oh, absolutely. I mean, I had another family that had made the trip and actually bought a house down in Florida and they made the move from Ohio down to Florida. And we kind of got into this experience about just moving down to Florida and what that entails. I mean, you and I were talking about hiring movers or not, and what does that process look like and some of the risks that can come up with it? It’s amazing when you’re not moving every year. So if you can lean on your financial advisor that has had clients go through this experience before, some of those pitfalls and some of those things to watch out for can then be relayed, have a good conversation for it and it just makes that transition so much smoother, so much smoother. Or at least that’s the idea. Right, Walt?

Walter Storholt:

Yeah.

Tyler Emrick:

That’s the idea.

Walter Storholt:

What are the other key questions?

Tyler Emrick:

Yep, so the other key questions that I think about that come up quite a bit are how do we know we’re still on track? So we’re getting back to this whole idea of like, hey, remember, 40% of retirees struggle to spend their savings. So how do we know we’re still on track? What are going to give us the confidence to actually go and change some of our spending habits? You’re not going to change you. If you have good spending habits as far as you live well within your means, you’ve done a good job savings, you’re not just going to all up and a sudden, “All right, hey, we’re spending all the income. We’re going to use everything that we have in our assets.” But it is a slow progression of confidence and gain it.

So I think this how do we know we’re still on track thing is why advisors meet with families on a year in and year out basis. What we want to do is we want to track that progress from year to year and identify, hey, are things moving in the right direction? Or are things moving backwards? And if they’re moving backwards, why? Is it, hey, maybe the market was poorly or hey, maybe we overspent what our expectations are.

And then once we understand that why, we can identify and say, “Well, hey, do we want to make changes? Do we feel like we need to?” And that way, when these things come up inevitably around, “Hey, maybe we want to move closer to our kids,” or, “Hey, maybe we want to gift more to our family or maybe we want to buy this car,” or whatever. You’ll have that confidence to say, “Hey, no, we’re on track. Us making this purchase or us taking this extra trip or us gifting to our kids isn’t going to derail that.” And we have the confidence and we’ve built in the plan enough safety net or what we call safety margin in there to be able to do some of these things that are going to enrich our lives.

So this whole question of how do we know we’re still on track? I think is a nice little kind of segue from like, “Hey, can we really afford this? All right, what’s the smartest way to do it? All right, hey, these decisions are going to continue to come up, how do we make sure we’re still on track to be efficient with those decisions and make what’s best for us?” So-

Walter Storholt:

It’s really twofold. Can I do this today? And then how do I make sure I’m still good after we’ve done this? Because now I’m living in a new reality with this big change.

Tyler Emrick:

Oh, you are, right? And we see it over time, right? Especially if you get into retirement. All right, that first year of retirement, you’re in, behind your second year, okay. All right, third year, you’re starting to become a pro. You got your systems in place, you go there. But then you keep meeting with your financial advisor and your financial advisor is saying, “Hey, you keep getting better and better and better. The market’s done great. Your plan results are looking wonderful. Is there anything that you’re not doing or that you’re putting on the back burner or anything like that that would enrich your life?” And driving those conversations.

I had a family where over the last two years we’ve been doing it and they’ve did it in the form of gifting to their children. And that whole conversation, the structure of it is similar to the home purchase one we just talked about. Those conversations first start to be like, “Well, what does it look like gifting to my kids? Do I gift them cash? Or do I gift them a new garage floor? Or do I gift to the grandkids like college education?” So is it just cash with free rein? Do whatever you want? Or is it more transactional on, “Hey, I want to help you do this. I want to see the money get used for this X use,” or whatever. And then once you have that, then the question becomes is, you’re gaining clarity. And then the question is, “Well, how do we do it? Do we give stock? Do we give cash? Do we do it in the form of a family loan?”

And again, your advisor, I think, really should be there to help you explore these conversations, help you find out what you want to do. And then once you’ve got that, “All right, hey, here’s the options on how we get it accomplished and how we do it in the most tax and efficient way possible.” And that’s kind of like my third question that I had wrote down is, “Well, hey, who’s helping us see the opportunities we didn’t know existed?” I don’t get that question a lot. I wish I did. But as I think about that role-

Walter Storholt:

Show me my blind spots, kind of.

Tyler Emrick:

Yeah, exactly. That’s why you’re working with someone that’s seeing a multitude of families retiring, a multitude of families use their wealth, take all that expertise and apply it to my situation and help me avoid those pitfalls or be more efficient or whatever it is, Walt. And that’s truly how I think about the relationship between a family or an individual and their advisors and really where that value comes into play, I think.

Walter Storholt:

Yeah. Oh, 100%. Well, you got to have all of those things in place. You’ve got to make sure that you are structuring your retirement properly so that you can make these big changes and big decisions, but make sure you’re doing that follow up valuation of where you stand now. It’s a constant solid plan that can morph quite a bit.

Tyler Emrick:

It is, right? And you’re not going to wake up and feel comfortable spending everything or do whatever. I think it’s a progression. It’s more conversations. It’s getting comfortable with the numbers that your financial advisor is sharing. I get it. Those numbers sometimes can be like, “What? What? What?” But if you’re communicating them on a consistent basis and you’re driving down into some more of these high level questions on how do you want to use your wealth and being challenged on it, I think the outcomes are better when we kind of think about it as opposed to, “Hey, look at my investment chart, you’re doing great,” and kind of moving on. A very different experience.

Walter Storholt:

Yeah. Yeah. Very different having a living, breathing plan versus a rigid plan or no plan at all, of course. And that living, breathing plan is what gives you the confidence to spend money in retirement in wise ways. And that’s kind of what it’s all about here on Retire Smarter, is making those types of changes.

If something from today’s episode resonated with you, don’t hesitate to reach out. You can schedule a one-on-one review of your financial situation. It’s a discovery call with an experienced advisor on the True Wealth team. All you have to do is go to truewealthdesign.com or click the link in the description of today’s show and then find the let’s talk button when you get there. You’ll schedule your 20-minute discovery call to see if you’re a good fit to work together with True Wealth Design. Based in Northeast Ohio, but working with clients all across the country. So wherever you are, don’t hesitate to reach out and schedule that time to visit. We’ve got more contact information in the description of today’s show as well so that you can find it very easily. Tyler, great episode today. Thanks for talking to us about spending. I’m ready to go spend some money now. I’ve got confidence.

Tyler Emrick:

Do it.

Walter Storholt:

Let’s go do it.

Tyler Emrick:

Absolutely, man. We’ll catch you on the next one for sure.

Walter Storholt:

Sounds good. We’ll see everybody next time right back here on Retire Smarter.

Speaker 4:

Information provided is for informational purposes only and does not constitute investment tax or legal advice. Information is obtained from sources that are deemed to be reliable, but their accurateness and completeness cannot be guaranteed. All performance reference is historical and not an indication of future results. Benchmark indices are hypothetical and do not include any investment fees.