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Optimal Finance Daily - Financial Independence and Money Advice
3476: [Part 2] 5 Steps To Learn To Spend In Retirement by Fritz Gilbert of The Retirement Manifesto
00:12:13
Fritz Gilbert challenges retirees to shift from a lifetime of saving to confidently spending on what truly matters
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this is Optimal Finance Daily 5 Steps to Learn to Spend in Retirement Part 2 by Fritz Gilbert of the Retirement Manifesto.com 5 Steps to Learn to Spend in Retirement As I reflect back on the changes we've made to support our decision to spend in retirement without worry, the following five steps come to mind. Pick a few that resonate with you and find ways to apply them in your life. Before we cover those, I'd like to share the following quote I read in the Retirement Starts Today weekly email. It's a relevant reminder of the need to change your skill set to learn to spend in retirement. The skill set required to create a nest egg is the exact opposite of the one you need to spend it. David Blanchett, head of Retirement Research at the PGIM Unit of Prudential Financial 1. Make an intentional Decision to Spend in the month I retired, I wrote the post titled It's Time to Live like no one Else. Looking back, I realized that post was my line in the sand, the point at which my wife and I decided we wanted to change our why and focus on maximizing our enjoyment in our retirement years. We wanted to break our spendthrift habits and learn how to spend in retirement without worry. The article outlines some of the key steps we took to reflect on our new priorities, summarized as we recognized we no longer needed to save. We were free to spend. We automated our spending as a means of breaking our thrifty habits, we built a maintenance reserve to defend against surprise expenses, and we intentionally changed our mentality from saver to spender in line with this spending mindset, I'll share a bit of advice I left as a comment on my friend Jim's recent post on Route to Stop Counting Pennies Jim, after years of aggressively pursuing fire, it's only natural to count the pennies. Here's one for Challenge yourself. To start intentionally buying the more expensive option, look for that peanut butter that costs $2 more. Order that meal choice that's $1.50 more expensive. Smile every time you do it. It's time to break the habit. Remind yourself every time that we're fine and enjoy those small luxuries along the way. It worked for me, maybe it'll work for you. End quote. One additional thought if you happen to earn any unexpected income in retirement, recognize that you're 100% free to spend 100% of that money. It wasn't in your original numbers when you made the decision to retire, it's not included in your safe withdrawal rate, and there's no longer a reason to save. Test yourself and see if you can spend any extra money without guilt. 2. Develop a system to keep you on track it would be irresponsible to spend recklessly in retirement. At the same time, spending less than we can safely spend in retirement could lead us to live a life of unnecessary sacrifice. How do you balance those two extremes? In our case, we rely on our bucket strategy and the automatic monthly paycheck we establish every January during our annual financial review. By developing a system to help us easily determine how much we can safely spend in retirement, we can reduce our worry when we're actually spending money within those previously defined limits. In our case, we simply transfer a fixed amount every month from our money market fund to our checking account. If the checking account continues to grow for several months, we know we can increase our spending. If it starts to dip, we know to cut back. It doesn't get much easier than that. Ensure your money will last your lifetime. The biggest fear holding retirees back from spending money is the concern that they'll outlive their money, become a burden to their children, or face unexpected spending shocks later in life. They're valid concerns, but not a reason to sacrifice. The potential experiences you'd like to pursue in your retirement, determine how much you can safely spend, and build a system to keep you on track. Once you've completed those two tasks, you know that you can spend without worry. At that point, it's just a matter of breaking a deeply ingrained habit. Number four Build a new dream. Speaking from personal experience, it's easier to spend in Retirement if you know it's Supporting a Retirement dream As I wrote in the post Building a Dream My wife and I had a dream of building a purposeful workshop on our property, both to support her growing charity Freedom for Fido, and to provide a writing studio for my work on this blog. The dream was 100% driven by the purposes we were both pursuing in retirement, and we've never regretted spending the money required to build the Treehouse writing studio where I'm currently writing these words. If you'd like to take a look inside, feel free to take a tour of my woodworking shop on my website. As I mentioned in my additional thought on Number one, if you have some unexpected income in retirement, challenge yourself to spend it. That's exactly what drove our decision to proceed with the purposeful workshop, and it's created more fulfillment in our retirement than we could have ever achieved by simply saving that extra money. If your dream, like Brian's is to increase your travel, find a way to take an extra trip. Buy a first class ticket instead of flying coach, buy an RV or rent one for a few weeks. Spend your money on retirement dreams. If you're struggling with that one, consider giving it away. This leads us to number five and number five, if you don't want to spend it, give it away. I've heard from numerous readers who have stated, but we don't need or want to spend any more money. We're content with what we have. And I applaud those who have tackled the challenge of being content. Ah, contentment. The topic of my very first post. Regardless, being content is not necessarily an excuse to spend less than you safely can in retirement. If you fall into the contentment camp, I challenge you to find a way to give more money away. There's a certain satisfaction that results from being generous that's hard to explain. My dad was the model of generosity. He'd often pay for people's meals at restaurants, provide low cost rent to folks in need in a second home he owned, or help people out who he knew were struggling. His will stated that 25% of his assets were to go to charity at his death, and it was a perfect statement of who he was as a man. I suspect he had been giving away 25% of his retirement income for years. I'm trying to learn from my dad and increase our giving. When the COVID restrictions started to lift, we routinely tipped 100% of our restaurant bill for the first few months to help out the employees who had been hard hit during the shutdowns when we saw the need in Ukraine, we decided to give a stretch donation since we had a bit of extra money in our checking account. When our niece became a missionary, we strongly supported her with an automatic monthly donation that will continue for as long as she has the need. There are a lot of folks with serious needs. Are you struggling with finding a way to spend in retirement? Consider spending more money on those who could use it the most. From experience, the statement that the gift goes to the giver is accurate. Give some money away and see for yourself. You won't regret it. Conclusion if you've not yet retired, you're likely puzzled over the reality that many folks struggle to spend what they can safely spend in retirement. It is, however, a well documented reality that many retirees face. If you're already retired and facing this reality in your own life, it's my hope that the lessons we've learned on our journey can help you on yours. You've sacrificed for years to cross the starting line. You've lived like no one else. It's time to ask yourself why. You just listened to part two of the post titled five Steps to Learn to Spend in Retirement by Fritz gilbert of TheRetirement Manifesto.com Reggie I just sold my car online.
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Let's go Grandpa.
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What?
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Wait, you did? Yep. On Carvana. Just put in the license plate, answered a few questions, got an offer in minutes. Easier than setting up that new digital picture frame. You don't say. Yeah, they're even picking it up tomorrow. Talk about fast.
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Wow.
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Way to go. So about that picture frame. Ah, forget about it. Until Carvana makes one, I'm not interested.
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Car selling made easy on Carvana Pickup
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management made Simple I'm sure there are many people who worry they haven't saved enough for retirement. In fact, the Federal Reserve Survey of Consumer Finances for 2019 found that the median amount of savings in Americans retirement accounts was $65,000, which is nowhere near enough to retire. But there are plenty of people who have the opposite problem. I was recently at a campfi event where half the attendees retired early and are actively drawing down from their portfolios using a guideline like the 4% rule, guideline being the key word here. The overwhelming issue that most people in the room had was realizing that they saved way too much money simply out fear. Now their main challenge is figuring out how to pull from the right buckets and do Roth conversions at the right time to minimize their lifetime tax burden and Medicare costs. I think the bigger challenge for many people in the fire community in particular, is a tendency to work longer just in case, even when they hit their goal number and really want to quit. In addition to Fritz's advice in this article, I think it's important to revisit one's finances and drawdown strategy annually and also create a bucket list for retirement in the years where you're netting out better than you planned. You may opt to spend some of that money on a bucket list experience. That's a wrap for another Monday show. Have a great rest of your day and start to your week and I'll be back tomorrow where optimal life awaits.