Adopting a Spend-Shift Mindset Doesn’t Mean You Are a Spendthrift!
Bravo, you’ve done a fantastic job of saving your money over your working years. You’ve likely accumulated your savings by adopting a mantra that goes something like this: “This is money I can’t touch,” “This is earmarked for my future,” or some variation of these words. You are at the crossroads of accumulation and distribution of your money. The challenge is to keep moving and not break down in the middle of the crossroads.
Our “beliefs” become part of our automatic subconscious behaviors. They become automatic, like brushing your teeth or responding to a snake in your path. Somewhere along the line, you learned that your reaction to the stimuli or belief protected you from an unwanted result. Not spending your retirement savings protects you from a dismal, poverty-stricken retirement. Well, here is the flip side of your “saving” mindset—you have arrived at retirement and now have difficulty “spending” your retirement money.
You wonder if “the future” is now or if you should wait a little bit longer. You worry about becoming a “spendthrift” if you spend your money on things you deem “unnecessary” at the risk of not having enough money for the “important” things during the rest of your days. It becomes a bit cloudy as to what is necessary and important and what is frivolous. Having a purpose and a well-thought-out plan is NOT being a spendthrift. However, developing a “spending” mindset does require a “shift” in your mindset to accompany the shift in your retired-ish years.
Warren Buffet said, “Someone is sitting in the shade today because someone planted a tree a long time ago.” You are now in the “shade” stage, and it’s time to stop planting trees and enjoy the fruits of your labor: the shade.
Uncertainty is the root cause of retirement anxiety. Uncertain life span, uncertain medical expenses, uncertain market conditions, uncertain taxation, uncertain inflation, and uncertainty about your ability or desire to work as we age are all factors that cause many retired-ish people to spend their retirement assets more slowly. Sudipto Banerjee, who authored the EBRI report, found that in the first two decades of retirement, the majority of retirees don’t spend down their assets, and “This behavior is not limited to those with lower levels [of] assets, to the contrary, of all the subgroups studied, pensioners have the lowest asset spend-down rates.”
As a Certified Financial Transitionist. I have worked with many clients on transitions that include money events. My observations prompted me to conduct a small base study with our clients who had difficulty spending when they reached their golden age of retirement, and some common findings were as follows:
Uncertain about outliving money due to unforeseen world conditions.
Feelings of “Fear of Missing Out,” otherwise known as FOMO, on high returns during a booming market.
Paralyzation when the transition from accumulation to distribution or spending was required.
There are products and strategies to help you create more certainty around world conditions, FOMO, and paralysis. Taking charge of your new “job”, creating a “Purpose Driven Portfolio” will provide you with the peace of mind you desire.
Understanding the components of certainty is key and will help you build a framework. Adopt strategies to guarantee cash flow, determine reserves, and provide insurance so you can successfully transition to the shift in purpose during the homestretch of retirement from
Growth > Preservation
Accumulation > Distribution
Risk > Safety
Uncertainty > Certainty
A successful financial transition would include continuously pushing your retirement savings to greater protection, greater productivity, and greater purpose. Following this principle will help mitigate the five biggest risks to your retirement dreams:
Pension Dilemma - providing a known guaranteed retirement paycheck that you can never outlive.
Inflation - providing increasing income to keep ahead of inflation.
Taxes - providing options to eliminate the risk of future increases in taxes.
Market Volatility - providing options to eliminate losses due to market declines while still being able to take advantage of the market rebounds.
Long-Term Care - providing options to help offset the potentially devastating impact of a long-term care situation.
*Consider that 80% of men die married while 80% of women die single. A plan for long-term Care is critical for both spouses!
How Do You Exercise Your Spending Muscles?
If you exercise your physical muscles for forty-plus years, you would be pretty darn buff, and you would have some amazing muscle memory going on. As most personal fitness trainers will tell you, to keep your muscles optimized, you need to confuse them regularly so they don’t become used to the same exercises. Confusing your body’s muscles boosts performance. However, this confusion is achieved through a strategic workout plan designed to optimally condition your muscles to enhance your physical fitness. Transitioning to a spending mindset is similar. Your saving mindset, “this is money I can’t touch,” causes confusion once you enter the spending stage. It will force you to revisit your money paradigm if you want to keep moving forward. Mindset confusion can act as a nudge that change needs to be considered. When you are confused, you seek information, and that new knowledge will bring clarity. Clarity will enable you to transform your new knowledge into action! When you properly exercise your mind and gain clarity, with planning and purpose, your mindset will become stronger and healthier. Exercising both your physical and mindset muscles with strategy and purpose will lead to optimal physical and financial fitness well into your retired-ish years.
Take a “Wealth-care Sabbatical”-To Spend or Not to Spend:
Schedule a time on your calendar to research and strategize your spending. Revisit the “why” you saved in the first place. Engage with a thought leader, professional, coach, or partner so you have some out-of-your-head viewpoints. Next, ask yourself the following questions:
Do I have my required and desired income needs guaranteed? What is my happiness worth? Can I put a price tag on joy?
Do I want my beneficiaries to enjoy my money more than I do? Sure, you may want to leave them some money, but is that why you diligently saved all your working years?
What may happen if I spend this money now? Will it improve my life or circumstances?
What may happen if I don’t spend this money now? What are the costs of giving up the “thing” I am considering spending money on, and how will not having this affect my life?
One of these answers will feel more important and “right” to you than the other. No one can make these decisions for you. Follow your gut. Take baby steps in your spending. Do your research so you can feel good about exercising all your options.
If you have required and desired income needs covered and still have difficulty spending money on things that bring you joy because you believe it is frivolous, try taking baby steps by doing one small thing a month that brings you joy. Baby steps can help bridge you to bigger decisions. A client once shared with me that even though she had a budget for entertainment, the reason she didn’t want to spend money on dinners or a spa day was that she hated getting a credit card bill at the end of the month. I suggested she fill a prepaid visa card with her budget and use the card for her fun. No end-of-month bills, and she is free to have fun with integrity and without dread. This didn’t change her money; it changed her emotion.
Life is a series of decisions. You’ve made good decisions to build up your nest egg and have now entered a new phase in your financial lifecycle. When you arrive at the crossroads of accumulation and distribution, you now need to make similar good decisions that allow you to enjoy the fruits of your retirement. This requires a mindset shift followed by new approaches and tools. It may also require you to recognize that the paralysis of letting old beliefs drive your behavior may be putting your peace of mind on hold. Take a road you haven’t yet traveled and enjoy the scenic route of certainty.
