A/B Conversations: CFP® Your Way Out Of It
A/B Conversations: CFP® Your Way Out Of It
Ep #112 - Retirement Balancing Act: Spending Now vs. Saving For Later
People work hard to save for retirement. Then they retire and – the balancing act begins. Do they value preserving assets throughout retirement? If so, they might hold fast to their saving habits and continue to be frugal. Others may value their freedom of time and want to enjoy experiences by spending, spending, spending! But what if someone values both? Listen to Ben and Adam share how they help their clients navigate the emotions around spending in retirement.
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Investment advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.
00:00:04 Benjamin Haas:
Hi everyone and welcome to A/B Conversations where we will help you CFP your way out of it. A podcast where you get into the minds of a couple of Certified Financial Planners on how we think and feel about everyday financial planning questions and what should really matter most to you. A healthier financial life starts...now! Hey, Adam. Podcast time. Hope you're feeling better. I know you're a little under the weather.
00:00:35 Adam Werner:
Yes. Yes. Should I share the full disclosure? It was my second bout with COVID in the last few years. Wasn't as bad as the first time around, but it was definitely, I could, I thought it was just a cold. And then as the week went on, I'm thinking this is really, for just being a regular cold, I really feel pretty, pretty run down. And then of course, lost my sense of taste, took a test, boom, positive. Made it's made its way through the house and all the other side feeling that's right, much, much better.
00:01:04 Benjamin Haas:
Well, and we're happy to have you back. I certainly. I need you for this topic today. This is a good one. I'll kind of set the stage and then you could help me maybe share some of the stories, but we read this article and I think it made for great discussion. We're certainly trying to get better at working at helping our clients or coaching our clients through really the psychology of money and more specifically in topic today, like the psychology of spending and the fear of running out of money. And we read this article and immediately we could think of so many different clients that we've worked with for years that would fit one of the two profiles that we're going to share, and immediately like this is a good topic. This is a good podcast to discuss because I can imagine anyone out there listening is going to relate to these, one of these two profiles.
00:01:54 Adam Werner:
Oh, yeah. Yeah, they're definitely on the extremes and I'll get into it, but yeah, I think everybody to some degree will relate with one or the other and maybe fall somewhere in between at times. But yeah, the more the more, we understand and the more we learn about the psychology and the behavioral side of money and just how people's upbringing and their experience really influences their relationship with money later in life is just endlessly fascinating to me and really does inform how we want to help our clients beyond just the dollars and cents but really getting better at the emotional side of money and making sure that they're in a spot that their emotions line up with how they're allocating their resources.
00:02:43 Benjamin Haas:
So, I'll button this up before I'll maybe rely on you to talk about the millionaire next door, but yeah the key takeaway here, before we even get into some of the points underneath it that we want to make is we want to have these conversations with you. If you're feeling these types of things. We don't want our role in the process, the money side of it to be kept just there. We recognize that we have to have these conversations about your feelings, your emotions around this, fears, goals, however you want to put it, because it's when these two things come together, right? Money's the tool to live the purpose that you want to have. It's just the tool. We need to know how you feel about it in order to direct you.
00:03:24 Adam Werner:
Yeah, so to your point, we found, you found this article and it kind of, kind of sparked a lot of these thoughts.
00:03:31 Benjamin Haas:
We'll give credit to Kevin if Kevin's listening.
00:03:34 Adam Werner:
Okay. Credit to Kevin, shout out Kevin. The two profiles in this article kind of fall in the extremes when it comes to the behavioral side of money. So there was the millionaire next door and then the serial spender. So the millionaire next door, we'll call him Ron. These were real life people that they used to shorten this article. I think there was a book written or one of them wrote a book. However that came to be, but essentially one was a gas station attendant and a janitor, and over time he amassed an 8 million fortune through frugal living, right? And sometimes to, to the extreme. And he was a very fundamental investor buy and hold philosophy, right? I'm going to buy these things. I'm not going to touch them, and they're just going to accumulate over the next 50, 50 plus years of my life. Now, when he passed, the majority of that money was then given away to charity, local library, hospital. But the interesting part of all of this is that nobody who knew him knew he had wealth. Not even his stepchildren, not anybody in the community. It was a complete surprise to everybody at his passing that, that he lived the way he did and had the wealth that he had.
00:04:44 Benjamin Haas:
Yeah. And I know that in the story, they also talk about even when he came in for like his last appointment with the estate attorney, like he wouldn't park anywhere near the building because he didn't want to, you know, put quarters in the parking meter. So I, I think especially where we are, you know, we kind of profile people as very Pennsylvania Dutch like, you know, it's not in their habit to want to have debt or you know, that weighs on them. They save. It was easy to point to a bunch of people that we work with that fit in this profile where to sometimes to the extreme, they just won't, they won't spend.
00:05:19 Adam Werner:
Yeah, and then on the other end of the spectrum, the example they gave, his name was Bill. He made millions as an energy trader on wall street. No idea what timeframe that was in, but after accumulating this wealth, no dollar amounts put to this for his scenario, but he made it his life's mission to spend it or give it all away before he passes. So his strategy, and I think these were his words, was to invest in experiences that yield long lasting memories, and always bear in mind that, you know, everyone's health declines with age and time. So I'm going to give this money away to my children before I die, so I can see it being used, right? Rather than saving for the inheritance when I'm gone, then they're going to get it. For him, the gratification came from seeing it and experiencing that with his kids and grandkids in this scenario. But also to the extreme, he made millions, but then spent millions, but that was all through the lens of what he valued in his life. And I think that's the whole point in all of this is that everybody has their own relationship with money, how they want to use it. And it's not that there necessarily isn't for most of these people, it's not that there's not money there to spend, but people put value on different parts of their financial life. Where some are very happy to spend it because that's what, what aligns with what they want to get out of it and other people are afraid. I think it is more of the fear based mindset. I don't want to spend this because what if? What if I need it? Or what if I experience XYZ? And I think there's the key is finding the balance somewhere in the middle, I think, for a lot of people.
00:06:56 Benjamin Haas:
Well, I think we could probably say that's almost like a third profile here, where if you're not at the extremes, I think we want to be clear that we work with a lot of people, too, that have amassed savings, but still live in that fear that, what if, you know, what if something goes wrong with my health? What if I need this money at a later date? A lot of the, I'm not going to spend, is because of that fear that some this money will need to save me. This will need to serve a different purpose than me going out and maybe spending it on experiences or giving it away. And that's where there again, we really need to play an important role in trying to balance that we can get into some of those details, but I think, really, that's the key point here the psychological behavior and the role that money is going to play for those that are fear based, we need to work through that.
00:07:46 Adam Werner:
Yeah, and I think in any of these scenarios, we'll kind of talk through or the different ideas. It's all coming from the abundance mindset. So for anybody that we're going to talk about in theory, they have what they need, in our minds, right? They have what they need to be able to live the life they want to live without fear of running out. But we, and I feel like we've talked about this in other iterations or other podcasts. We can see those projections. We can run that. We can use all of our experience in working with people and kind of seeing these things play out, but us showing a projection or just sharing our feedback doesn't necessitate behavioral change in somebody overnight. There is all of these years of experience on someone else's side, on the client end. That is, again, that's their relationship with money. There are so many experience that influence how people approach these things. So yeah, even though we're assuming there is abundance, it is that, that, that push and pull between living for today and saving for tomorrow.
00:08:51 Benjamin Haas:
So then let's peel back the curtain. Some of this training for us has always been, it's hard for people to get themselves out of the, how they're feeling and thinking about money right now, but it's on us to ask questions and, you know, mock up the exercise. If you had all the money, if you knew you had all the money you needed, if we had the crystal ball to know what could go wrong or would go wrong in the future and you still felt that you were okay, then how would you spend it? What would you value? How would you change your behavior if all those unknowns are gone? Yeah, that's a thought exercise that is important in all of this, because we're not going to sit here and just try to convince you with mathematical modeling, right? There may be a role for that calculator serve a purpose, right? The human element of what we know has worked for other people. We're going to bring to the conversation, but I think some of this, you know, like a part of our role is to get you to think about what really is the hurdle for you to spend for you to have this money for a different purpose in your life?
00:09:51 Adam Werner:
Yeah, it almost sounds like that's a superpower. The ability right, that scenario you laid out, like just imagine, you're able to just not worry. And I'm saying this as a worrier and a glass half empty type of person myself, right? If that was just removed from the equation, and I just knew no matter what, I'm going to be okay. Just how freeing that can be just the weight lifted. Again, I'm saying this as a as an anxious person myself and thinking about finances and just making sure that you are prepared for those what if. Taking that out of the equation, it's just it's very uplifting. You can now look at your life through maybe a different lens. And I think that's what's interesting in some of the conversations we've had with clients in that you kind of takes some of that pressure off of, we know you're going to be okay with everything that that we're seeing and feeling in your life, and getting them to start to feel that way, too. It's interesting to kind of see that sometimes happen in real time and actually lead to people using their resources or using their savings in a way that, again, you can see the positive impact in them, which they may not have done because again, I think it's that fear based mindset that is just, it's so human and it's, it just, it cripples. It can freeze you; paralysis by analysis oftentimes, and you're just kind of stuck.
00:11:17 Benjamin Haas:
Well, I think we do that in three different ways. We can do that through showing some mathematical modeling. We can do that through sharing past experiences. We did a podcast not that long ago on it's okay to plan for worst case scenario. Let's play out these scenarios that may be holding you back. You're the millionaire next door that has all this money. I'm thinking of a specific client now. I'm not going to redo my kitchen because that just seems frivolous. Even though I'm retired. I love spending time at home. Like, why wouldn't I, why wouldn't I? We can go through the process then of showing the mathematical modeling, showing that you're going to be okay. Let's plan for worst case scenario. What if you do have long term care needs? What if this goes wrong? If you're still, if we play all that scenario out and you're still okay, then this money can serve this purpose for you right now. That's why you have it. That's why you saved. Let's go through.
00:12:07 Adam Werner:
Yeah, I think the whole idea of saving for retirement, kind of getting to that threshold, it's hard work for most people. And I, maybe that's by design, right? It's the whole, the idea of delayed gratification is a good trait to have, but at a certain point, in our minds, you don't need to delay that forever. There's a difference between delayed gratification and then just never having the gratification at all on the other side. I think that's the part that we do see from time to time, and as you said, maybe it's just the area that we're in you know, just being very frugal, the Pennsylvania Dutch kind of mindset. What's the point of creating the wealth or saving if you're not going to do anything with it. And I think getting people to kind of adjust their mindset or really go through the thought exercise of what remove the barriers, right? If money were not an issue, what would you do? How would you spend? Would you live differently? What are those things? And sometimes money is not infinite. So sometimes you can't check all those boxes on the list of things you would want to do, but we would hope you can start to prioritize, build your list and start to at least do some of the things that would be meaningful you know, to whoever that is. Whatever those things are.
00:13:26 Benjamin Haas:
And I guess I'm on the other side of it. Not that we want to play the role of gatekeeper. Now I'm thinking of build a serial spender. Yeah but there is a degree of that too. If there is the appetite. Hey, I want to live my life. I know I've saved. I, Adam, I hear you. I'm happy to not delay my gratification any further, but what are my limits? We certainly play a role there too, to say, well, what is a healthy amount of spending? You know, it's our job to consider the what ifs if they're not considering the what ifs, like we don't want the what ifs to be crippling to somebody, but we want to educate them on how we prepare for that certainty of uncertainty and you know, what we can do to try to offset some of that risk for later in life. But yeah, there, there is a role to be played there too, to make sure that people like Bill can have the experiences or gifts that they want to give and do our best to run that plan that is, hey, again, if you have the crystal ball and you can live the life you want to live and pass away with $1 to your name. Hey, you, right, you lived it perfectly. We can play a role there, too. The key is to have those conversations as well. If that's the way you're feeling.
00:14:31 Adam Werner:
Yeah. And I think ultimately, I think that's the point, right? It's, it's making the room for those conversations to talk through those, we'll call them guardrails, right? Or you often it's a bumper bowling. Here are your bumpers. As long as you end up somewhere in between these guardrails, we have the utmost confidence that you're going to be okay. So to that end, it's not that, you know, again, money's not infinite. Most of the people that we work with still have to live within some sort of guardrails, but just going through that conversation, talking about the tradeoffs, if we did this, or if we spent this, sometimes our role is just that. It's just to give the education, if you did this, here are the potential dominoes. And oftentimes, and I know we've talked about this numerous times in the podcasts. It really is just understanding what those tradeoffs can be, because oftentimes with finances, we've said this before, decisions don't happen in a vacuum. There are oftentimes those unintended consequences, and I think part of our value is just making sure that's all laid out on the table before somebody makes a decision that could have an impact, good or bad, just so that they, on the other side, can feel good about whatever decision they're going to make and understand the potential impacts.
00:15:53 Benjamin Haas:
And I think that's just it. Maybe we can kind of close on that, you know, for our relationships to work, right? Think about the people that call us, pick up the phone, call us, want to meet with us, because they say, look, I'm about to retire. Can I retire or not? I hope this podcast is a good example of, well, look, we need to find out what's rewarding to you. What's important to you. Let's figure out how you're viewing your retirement. Are you coming from this place of, hey, you know, can I retire? I don't plan on spending. I'm afraid to spend. There's a whole nother set of conversations, too. Look, I've been waiting to retire. I don't know how long I'm going to live. I want to spend. Okay. That's a whole different kind of conversation. Yeah. The basis of our work is to figure out how you think and feel about money and then just try to align that. Right align your value, your vision and your wealth to make sure that we're developing a plan that bumper bowling, right? Leads you to some sort of future experience where hopefully you're not on the extremes worried about spending or going a little too crazy with the spending.
00:16:51 Adam Werner:
Yeah, so not to prolong this any further, but 1 of of the points I think we wanted to make was. It's okay to prioritize spending money on the things that matter to you, right? So, I'll give a snare and I feel like I've had this conversation in the not-too-distant past. For a lot of people when they get to retirement, right? Trap travel is oftentimes a focus. For some people, it may not be. And I'm thinking of someone in particular where the decision between am I buying a new car every couple of years, or would I rather take, you know, larger trips? You and I, or any other two people may have very different feelings on, well, I, I'm going to spend more time in my car over the next few years than I am on vacation. I'd rather, you know, I'd rather put that money into that than taking trips. There are a lot of people who would, feel the exact opposite. So I think the whole point there just being something as simple as am I going to take an extra vacation this year or am I okay with the tradeoff of driving an older car? If mentally it's, it is psychological, right? It's the mental accounting. If I know my resources are finite and these are the two decisions I'm faced with, which one would I prefer? And then you just kind of, again, you just think about the tradeoffs. But it's just interesting. I think to be able to help people prioritize what really matters to them, and then if the tradeoff is, well, then here's an area of opportunity to right side or align these things, then there's, the permission, kind of move forward with a decision, whatever that ends up being.
00:18:24 Benjamin Haas:
So let's talk about it.
00:18:26 Adam Werner:
It's a tug of war.
00:18:28 Benjamin Haas:
Yeah. So if you have not had the space to have these conversations, include us in it. If you're in retirement now and feeling different than you may have a little while ago, let's have those conversations, too. The key is to put it out there, and I think if you can do that with the people that are your trusted resources, it's just going to lead to better conversations and hopefully better outcomes.
00:18:50 Adam Werner:
Well said.
00:18:51 Benjamin Haas:
Thank you, sir.
00:18:52 Adam Werner:
All right.
00:18:53 Benjamin Haas:
Until next time.
00:18:55 Adam Werner:
Bye.
00:19:02 Benjamin Haas:
Hey, Adam and I really appreciate you tuning in. Please note that the opinions we voiced in the show are for general information only, and are not intended to provide specific recommendations for any individual to determine which strategies or investments may be most appropriate for you. Consult with your attorney, your accountant and financial advisor or tax advisor prior to making any decisions or investing. Thanks for listening!
Investment Advice offered through Great Valley Advisor Group, a Registered Investment Advisor. Great Valley Advisor Group and Haas Financial Group are separate entities. This is not intended to be used as tax or legal advice. Please consult a tax or legal professional for specific information and advice.
Tracking # T007031