Part 2 – Permission to Spend It
Permission to spend your hard-earned savings is what retirees need to hear. Initially retirees feel unable or literally scared to spend their hard-earned income once the paychecks stop coming into their bank account. Often the steps have been taken and monthly payments from investment accounts, Social Security benefits, or company pensions have replaced the employer checks. However, they are reluctant to spend. Still, there is an uneasy feeling or real fear of running out of money.
Why retirees are not confident to spend?
There is a lack of understanding or confidence in their financial plan. Permission to spend their nest egg or the courage to withdraw from their accumulated savings is daunting. Changing behavior is based on full understanding or real acceptance of it. Now, is the time to delve deeply into your financial roadmap and completely understand how it is designed to work.
- Distribution Rates – Knowing what amount is safe to spend in the current year and on into the future years will provide a sense of comfort and security.
- Assumed Rates of Return –Being comfortable with your investment allocation for both current income and future growth is essential to one’s confidence.
- Investment Account Types – Knowing how your accounts are set up for taxable income and knowing where to pull money from for expenses provides ownership.
- Expected Future Growth – Having a good sense of how accumulated savings will continue to grow as you are spending helps alleviate the anxiety of running out of money.
- Impact of Inflation – Understanding the impact of inflation over time versus the spending plan will allow you to spend knowing that future years of elevated costs are accounted for.
New Spending Plans
New spending patterns or developing different habits will require a period of adjustment. Diligent and frugal savers don’t change overnight. Adjusting to spending the “savings” may require taking several steps and assessing how it feels or fits into their lifestyle. One must learn to walk before running.
How to start changing the mindset?
Here is a five-step plan to try.
- Discuss your needs, wants and wishes with a financial advisor.
- Visualize the result.
- Model and stress test to raise your confidence.
- Start slow and spend small amounts of the money.
- Assess how it made it you feel. Did it bring you satisfaction, sense of accomplishment, or security? Or did it make you feel more uncomfortable?
If you have done your part and saved appropriately during your income producing years, now is the time to create your retirement plan, test it, develop confidence, and set out to follow it. Holding onto your money forever and not allowing yourself to enjoy it, because of inflation uncertainty or fear of returns could prove to be foolish behavior. Clearly understanding and visualizing how your savings become a steady source of income through good and bad markets, is something that WPC has been outlining for clients for decades.
If you missed Part 1 you can read it here: I Miss My Monthly Paycheck – Help!
