Matt Wenborn - Dec 2024
As a Certified Financial Planner, I assist those of all walks of life, with their own unique stories,
however fundamentally, all of my clients can fit somewhere on this graph, either they are on track to run out of money, or they will never spend all of it.
For those whose situations resembles the green line above, it is an interesting conversation. When I show the green line to my clients, many for the first time can see that they are able to fulfil their financial goals and objectives comfortably. This erodes away a lot of anxiety and answers the question, ‘am I going to be okay’? We even work on the green line, so it more closely resembles the purple line in the graph below.
But, why on earth would I want to do that?
Essentially my client now has less money at the end of their life than they would have if they haven’t spoken to me at all. And that, is the point. The difference between the green and purple line is my client utilizing their wealth on things that bring happiness to their life. That may be travel, philanthropy and gifting, home renovations or something else entirely. The point being my clients are using their wealth to bring a greater degree of joy and purpose in their lives.
Sometimes, I see people with say, a green line type scenario and after running through all the data and offering differing probabilities of favourable and unfavourable market conditions the line still goes up. Even at that point some of my clients are still not willing to spend, and sometimes those individuals continue to lead a very frugal lifestyle. This is a tricky point of contention, and the reason for the article.
Many of you may be reading this thinking this
must be rare. You might be thinking,
‘If I had the money, I’d be spending it!’
It’s not rare at all.
Anecdotally, I see this more often than you may think!
A study by Black Rock found that the vast majority of retirees still have at least 80% of their savings after two decades in retirement. A further study from the Employee Benefit Research Institute surveyed average retirees between age 62 and 75 and found that three-quarters of them had seen their assets remain the same or grow in retirement. That means their line is looking like the green line, more so than the purple.
To me, that is not a good outcome.
I sat down with Rebekha, a clinical psychologist to try and get to the bottom of why this is occurring and what can be done to circumvent this. Here's what we discussed...
1. Changing your mentality (Spender vs. Saver)
Rebekha stated this could be due to a multitude of reasons. One reason is that a saving mentality is much different than a spending mentality. Someone may have conditioned their brain to save for 40+ years and that is an extremely difficult mindset to break. To go from accumulating all your life to de-cumulating is a completely opposite skill set, and potentially a scary prospect for some individuals and may bring about a sense of anxiety.
One way to circumvent this is look at the numbers and trust the financial projections. By running multiple financial scenarios with differing rates of return (both good and bad) will help overcome the anxiety of running out of money.
I mentioned to Rebekha that we do this regularly with our clients however, some clients are still reluctant to spend. Rebekha went on to say, that sometimes it’s as simple as dipping your toe in the water and spending a little bit to get comfortable with it. This may be via a small regular monthly withdrawal, or a small lump sum. Either way, by just trying a little bit, it helps you to slowly become accustomed to changing the save to spend mindset.
Rebecka went on to say the same could be said for investing... If you have received a windfall, to make yourself feel more at ease you could slowly drip feed yourself the money to help assist with anxiety. There are multiple stories on scams, so anxiety behind investment is warranted but sometimes doing nothing is just as bad.
2. Changing your spending habits?
Have your spending habits or expenses changed over time? This can be often seen in the case of empty-nester's or those who have suffered a relationship loss.
An example of this could be...
You were spending money frequently on financial dependents, or prior to the loss in relationship, traveling regularly with your partner?
Has this changed drastically, and you are now spending far less?
Although difficult, try to remember and ask yourself the following questions:
'Are the things I always thought I wanted coming true?'
If you enjoy travel, 'Could I travel with friends or family?'
If you enjoyed frequently dining out, 'Could you do this with friends or family?'
Nothing will ever replace the loss; however, you can still enjoy the things you once did, just in a different way.
Do you find yourself wondering, 'what it would be like if…?'
Sometimes the anticipation is far more anxious and scary than the action. And sometimes, there may be something getting in the way of actioning a spend. Be honest with yourself and ask yourself what that might be so you can begin to overcome it.
3. Do your homework. Research.
Rebekha mentioned that another great way is to look at the evidence and data. Do your own
research and due diligence and find out what the data says, rather than someone’s opinion. You don’t need to turn into a financial specialist, however reading an article here or there about spending patterns, rates of return or risks to avoid wouldn’t hurt. The more educated you are on the topic, the more likely this will erode some of the anxiety you may have around spending in retirement.
As a financial planner, I can empathize here. Unpredictable factors such as; market performance, life expectancy and health issues make spending your money easier said than done. Some people may be hesitant to tap their savings because they think, “I have X amount of dollars which must last the rest of my life, but I my future is uncertain. So, if I spend too much too soon, I’m putting myself in jeopardy.”
Although I run projections for my clients, to help them see if they can afford to spend a little more than they assume, I also tell them, “Now the money is doing the work [so they] don’t have to” and that seems to help people.
4. What else can help me?
Fundamentals such as diaphragmatic breathing, diet and activity or exercise can also help calm spending anxiety. Potentially, 1 or 2 sessions with a clinical psychologist can help because talking though your concerns with someone out of your regular support network is often a prudent thing. Sometimes family can be too close. A clinical psychologist can give you support and guide you with things to work on.
Ask yourself: 'What is the purpose of the money? To have it? Or to use it as a tool to do what you want and to avoid what you don’t want?'
Ask yourself what you want to accomplish and to view savings as the means to an end.
In conclusion, as a financial planner it seems (for most people) there’s a little voice in the back of their head telling them, “Sure, it worked out for most people in the past but what if the future is different?"
"What if I retire at the worst possible time?” I totally understand this sentiment. It can be a scary proposition to leave the working world behind and be forced to cover the majority of your expenses from your life savings.
You have to budget for your basic cost of living, travel, healthcare, inflation, taxes and any unexpected expenses. Plus, there’s the added bonus of having no idea what future returns in the markets will look like.
My advice to those with any resemblance of financial anxiety, is to reach out and ask for advice.
It always comes back to the same basic question, ‘am I going to be okay, and if not, what do I need to do?' We can give clarity around this and in many instances, give you a small push into better realizing your financial goals and objectives when monetarily these may be achievable, something is just getting in the way. In many instances, we can overcome those hurdles together.
If you have questions or queries with regards to this article, or if you would like to reach out regarding your financial planning goals and objectives feel free to contact me.
Matt Wenborn
Director – Certified Financial Planner cm
021 495 190
matt@irvinewenborn.co.nz
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