As retirees transition from the accumulation phase of saving to the distribution phase of spending, they often encounter emotional challenges and uncertainties. As we wrote last year, one of those challenges occurs when individuals develop a scarcity mindset – not enough money, not enough opportunities, and not enough resources. In this FAQ, we address common concerns and provide practical strategies for navigating this significant life transition.

1 – What is the psychological impact of transitioning from saving to spending in retirement?

The shift from saving to spending in retirement can evoke a range of emotions, including anxiety, fear, and uncertainty. Many retirees worry about outliving their savings or making poor financial decisions that could jeopardize their future security. A financial advisor can help you plan for, and ease into, your financial mindset transition as retirement approaches.

2 – How can I balance the joy of spending with the fear of outliving my retirement funds?

Balancing the joy of spending with the fear of outliving retirement funds requires planning, as well as making mindset adjustments. Creating a retirement savings distribution plan, setting realistic expectations, and focusing on what matters most can help alleviate these concerns.

One way to balance the joy of spending with the fear of outliving your retirement funds could be to break your retirement into phases. Instead of retiring outright, consider continuing to work part-time during the first phase. Some people stay with their employer and transition to fewer hours, while some shift to consulting, or work that’s completely different. The additional income could provide a safety net as you determine how much money you need to live on, or it could become a “playcheck” – something you use to cover travel, hobbies, or other interests. As you age, health considerations may prevent you from traveling as much, or participating in as many activities, potentially lowering your expenses. It may be easier, at that point, to consider retiring full-time.

3 – What are some strategies to help shift from a saver’s to a spender’s mindset during retirement?

Strategies for shifting from a saver’s to a spender’s mindset may include tracking your expenditures for a few months and revisiting your budget to see how and if it still aligns with your retirement goals. In addition, staying engaged and active, setting realistic expectations, and perhaps, choosing to focus on experiences rather than material possessions can be helpful.

4 – How can a financial advisor help with the psychological aspects of spending retirement savings?

A financial advisor can offer guidance and support as you navigate the emotional complexities of retirement – and not just around how you spend down your savings. As our case studies demonstrate, every person’s life journey is different. A financial advisor’s goal is to help provide reassurance, accountability, and personalized strategies designed to help you feel more confident about your financial decisions throughout your life.

5 – How does a retirement income plan differ from a retirement savings plan?

A retirement income plan focuses on how to generate income to cover living expenses during retirement by taking a distribution from funds you’ve saved, whereas a retirement savings plan primarily concerns accumulating wealth for retirement, through a pension, 401(k), or IRA, for example. Think of it this way: Retirement accumulation is the process of building wealth, while retirement savings distribution involves creating a withdrawal strategy for your assets once you stop working.

6 – Can you provide tips for creating a retirement budget that includes both necessary and leisure spending?

Tips for creating a retirement budget include tracking your income and expenses, setting specific goals, planning to allocate your resources, staying flexible and prepared for the unexpected, and reviewing and adjusting your budget regularly. Ready to get started? Download our free budget worksheet!

7 – What role do emotions play in financial decisions during retirement?

Emotions play a significant role in all aspects of money management. In fact, behavioral economics – which combines elements of economics and psychology to understand people’s money behaviors – has long been a recognized field of study. Some of the more common behavioral biases include “recency bias,” in which recent news, events, or experiences influence an individual’s behavior; “confirmation bias,” in which an individual seeks information that reinforces existing perceptions; and “loss aversion bias,” in which an individual chooses to play it safe, accepting less risk than they should be able to tolerate.

As Savant’s Director of Financial Planning, Anne Mank, wrote, retirement is a significant chapter in our lives, but few people really do a good job preparing for the transition. Emotions can significantly impact financial decisions, and retirement savings management during retirement, often leading to irrational behavior or decision-making based on fear or anxiety. Recognizing and understanding these emotions is crucial for making sound financial choices. One approach could include building your own “retirement dream team” to help you get objective feedback when you need it most.

8 – How should I approach major financial decisions once I’ve retired?

One of the best ways to approach major financial decisions is to anticipate (to the extent you’re able) major expenditures and plan for them before you retire. For example, if you own your own home, look beyond your mortgage or property taxes, and consider maintenance. What if your hot water heater or your furnace quits? What if you need a new roof?

Are you adequately prepared for a major illness, losing a spouse, or helping a child who may be in crisis? Consider sitting down with your financial advisor and mapping out a retirement spending strategy for expenses like these – whether they are expected or unexpected.

9 – What are some common psychological barriers to spending in retirement, and how can I overcome them?

Common psychological barriers to spending in retirement include fear of running out of money, guilt about enjoying leisure activities, and reluctance to depart from established saving habits. Overcoming these barriers may involve reframing beliefs about money, seeking support from a financial advisor, and focusing on the purpose of retirement savings.

Unfortunately, some of the most helpful personality traits that help us save for retirement can become obstacles to spending money once we retire. In “The Mental Mistakes We Make with Retirement Spending,” Wall Street Journal reporter Meir Statman writes that conscientious people accumulate more than less conscientious people, even after accounting for differences in income, education, and cognitive ability. But that same personality trait threatens to keep these accumulators from spending what they have in retirement. Statman suggests reframing our thoughts about money may help.

Numerous studies have attempted shed light on the difficulties retirees encounter when determining how and whether to spend down their assets. Interestingly, studies by Madamba and Utkus in 2016, and EBRI in 2012 found that having certain guarantees can help retirees feel more confident about spending their hard-earned nest eggs. In the 2016 study, retirees with incomes from Social Security and pensions, spent roughly three-quarters of their incomes, while retirees who relied more on non-guaranteed income sources, such as portfolio assets, spent about two-thirds of their incomes. The EBRI research found that having long-term care insurance had a significant effect on spending.

We believe working with a financial advisor to help identify income sources, or to develop a plan that includes long-term care considerations may be a good way to alleviate any potential anxiety about spending in retirement. It could also be helpful to make a list of your concerns before meeting with an advisor, so you and your advisor can address each item.

10 – How can Savant help me navigate the emotional journey from accumulating wealth to spending it in retirement?

Savant provides personalized financial guidance and support to help pre-retirees and retirees navigate the emotional journey from accumulating wealth to creating a retirement spending plan. From helping you develop your retirement income sources, to offering ongoing estate and tax planning, our goal is to help empower individuals to embrace retirement with confidence and peace of mind.

About Savant Wealth Management

Savant Wealth Management is a leading independent, nationally recognized, fee-only firm serving clients for over 30 years. As a trusted advisor, Savant Wealth Management offers investment management, financial planning, retirement plan and family office services to financially established individuals and institutions. Savant also offers corporate accounting, tax preparation, payroll and consulting through its affiliate, Savant Tax & Consulting.

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