Retirement Answers

Jacob: 00:01

When you look back twenty years from now, fifteen years from now, thirty years from now, are you gonna wish that you had spent more money and enjoyed your wealth while you had the chance to do so? The reality is most people spend more in the early years of retirement because that's when they're the healthiest and they actually have the time to go and travel and do all the things they wanna do. Welcome to Retirement Answers, a podcast built to answer your most pressing retirement questions. If you're someone who's either thinking about retirement or already in retirement, well, you're in the right Hey there, my name is Jacob Duke, and each week I'll be walking through different tips and strategies to help you succeed in retirement. So let's go ahead and get started with today's show.

Jacob: 00:44

Welcome back to another episode of Retirement Answers. As always, my name is Jacob Duke. I'm a certified financial planner. And the purpose of this podcast is to answer your retirement questions and hopefully give you confidence in your purpose and the ability for you to retire and do so successfully. So that's why I do this.

Jacob: 01:04

That's why I love sharing these ideas and tips and strategies with you. And if you're a frequent listener, thank you so much for listening to the show. It really encourages me and I love hearing from all of you who are emailing and reaching out and asking different questions. That's why I do this. So thank you so much.

Jacob: 01:19

And if you're a new listener, well, welcome to the show. I hope you find this valuable today. And if you do, be sure to go back and listen to some previous episodes that I've got out that have really good ideas and strategies, built into those. So if you find value in this as a as a listener, then I would love it if you give a rating and review there on the podcast platform you're listening through, whether that's Apple Podcasts or Spotify, would love it if you could give a rating that way, other people just like you can can discover the show and learn from these same tips and strategies. So by the title of today's show, you can see that today we're talking about how we can spend with confidence in retirement.

Jacob: 01:55

Now, this is one of it might be the biggest struggle that I find as a retirement planner and speaking with retirees and pre retirees all the time. It might be one of the hardest things for someone to do is is have a confidence in their spending they don't have an income from a job anymore, and they have to live off their portfolio that they've saved and built over time. So, I want to walk through this based on two different conversations I've had recently with current clients of mine, just some of the fears that are there. Then I want to give you three different tips or steps that you can take to hopefully build your confidence in your spending plan and know that you have a way forward and your retirement can be successful based on your spending expectations. So like I said, this conversation really stems from a couple different meetings and conversations I've had recently with current clients of mine.

Jacob: 02:40

And these are people that have done a really good job of saving and investing for their retirement. Like both of these people have north of $1,500,000 saved and they have no debt, they paid off their mortgage, all of their other debts, they have no debt. They have really small expenses on a monthly basis relative to that 1,500,000 or more dollars they have saved, yet they're still scared to spend money and they're wanting to cut back on their expenses a month to month. So I had them come into the office and we discussed and walked through these different ideas and questions they had. We looked back at their retirement plans, some of the projections and the software that I'm using with them.

Jacob: 03:16

And we quickly figured out that it's really not a math problem. Like they have the money to retire and honestly spend more money than they currently are. And I've and I've explained to them that this is way more of a mental shift than it is a math issue in terms of the dollars and cents working out. And so I wanted to have this conversation with you today, the podcast audience, because I've found that the mental shift of going from saver to spender is sometimes the hardest part of actually transitioning into retirement and enjoying your retirement really well. So now I do want to make sure that I say that it really is a balance.

Jacob: 03:52

Like you have to spend your money, but you also need to do it in a smart and thoughtful way. So you can't just say, hey, I want to spend $10,000 a month, but your portfolio only warrants a $5,000 a month spending threshold. That would be unwise spending. So we obviously need to do the planning on the front end and build in, hey, here's what we can expect our portfolio to do over time based on historical averages. And then also based on inflation and social security and other forms of income that might be coming in.

Jacob: 04:19

Here's how much we can spend out of your portfolio each month and still have a sustainable portfolio throughout retirement, and then see where we fall relative to that. So what this is, is you've got to obviously do the math on the front end, but at the end of the day, we still have to have that mental shift of, yes, it's okay to spend X amount of dollars out of my portfolio and not have to worry about it. So whenever we do that, what we're doing is we have to think about how we can spend better and be thoughtful in how we're spending, right? So if that means we need to eliminate some unnecessary debt, we might need to do that. That means we need to have a thoughtful plan around how we're spending and where that money is coming from.

Jacob: 04:56

Is it tax deferred? Is it tax free? Is it from a brokerage account? Should we turn on social security yet? All those different questions come into play and say, how are we building an income plan for you that meet your specific needs?

Jacob: 05:07

And another part of this really is at the end of the day, if you don't want to have a million or more dollars saved, that are in your name by the time you die, then then you're not spending enough. And this is something that I actually run into a lot with people whenever they have north of a million dollars saved for retirement. Number one, the reason that they're so worried or frugal or scared about spending their money is because they didn't get to that level of assets without actually doing it intentionally and disciplined every step of the way throughout their career, right? They've had the processes in place. They knew that they had to save for retirement.

Jacob: 05:38

So they did a really, really good job of that. And so for them, it's really ingrained in their mind and their daily process to say, I'm going to save money because that's what I'm supposed to do. And so whenever we get to that retirement age of saying, I'm gonna stop saving because I'm no longer earning an income, and now I'm gonna spending out of my assets that I've saved. That's a really hard transition. So if we don't actually transition well mentally here, whenever we go into retirement, what you're gonna do is you're gonna pass away with more money than you started retirement with, which means you did not enjoy or spend your assets in retirement the way you perhaps should have.

Jacob: 06:11

Now, if you want to leave a legacy for your kids or grandkids, or perhaps leave all of your money to a charity or church or whatever's most important to you, now that's a different discussion, but some people end up saying, hey, I don't really care if I leave anything to anyone or any organization. I just want to enjoy my retirement as best as I can. Well, if that's the case and you end up dying with money in your bank accounts or in your IRAs or Roth IRAs, then you didn't spend enough or you didn't spend effectively. So there's a book out there called Die with Zero, and it's a great book. If you want to learn how to to really spend your money to ultimately have a fulfilling retirement, I really encourage you go read it and check that out.

Jacob: 06:48

And the reason that this problem kind of crops up is because we've done all of the hard work. We've we've become a millionaire. We've saved, we've invested, we've done all the things correctly. And whenever we start spending our money in retirement, the hard part is, is we think that we're going backwards. Like we think that we're going down in terms of societal ranks, or we're no longer a millionaire because we enjoyed the first ten years of our retirement and we spent money and went places and did the things that we enjoy with the people we love.

Jacob: 07:14

And now we don't have a million dollars anymore. Oh, no, we're not a millionaire. That is a real fear for people that have done really well and saved their money effectively. Right? And so the social status, kind of that idea of where they stand in society and do I have enough and how do I compare to my my retired peers and all these different things, that sometimes is a hindrance for people whenever it comes to spending, like they're afraid to spend because they don't wanna quote go backwards after they've done all the hard work to become a millionaire or a multimillionaire.

Jacob: 07:43

There's also this fear of spending too much money in retirement and and then at the end of the day, running out before they pass away. Right? So this is an absolutely valid fear because if you don't have a plan for spending, then you very well could spend too much and leave yourself without much money later on in retirement to live on. So all of this kind of points to the idea of of this is a balance. We have to spend your money effectively, but we've got to do it in a smart way so that we can number one, enjoy retirement because that's what your money is for.

Jacob: 08:12

And then ultimately make sure we don't run out later on because we spent too much. So I've put together three different kind of steps or tips that you can take to become a more confident spender in retirement. Because at the end of the day, what we're trying to solve for is, is number one, it's hard to become a spender after you've been a saver for your entire career. And I want to make sure that you don't lose out on any enjoyment because of this fear of spending. We've been programmed to save, save, save, and now we have to just automatically flip the switch and we think it's all gonna be easy.

Jacob: 08:40

And I figured out that it's just simply not easy. So retirement is really signing up to spend down your wealth and that mental shift is hard. So here are three different suggestions for you to become a more confident spender in retirement. The first one is remember why you saved. It was for this moment.

Jacob: 08:56

Like this is the reason and the purpose behind all that hard work, all of the discipline, all of the of the of the denying yourself of spending your money throughout your career in order to have a life and a wealth for the future. It's for this moment. Like this is why you saved is for this time period of your life so that you don't have to worry about money anymore. So this is sometimes really hard. Like you didn't save just to simply have more money in your accounts or just simply be wealthier.

Jacob: 09:23

Right? That's a money focused mindset. I want to have a life focused mindset. So saving to have freedom in retirement, that has been kind of the purpose of why you've done the things you've done, right? So we have to remember why we've saved the way we've saved because it was for this particular moment at age 60, at age 55, at 65 or 70, whenever you are retiring or whenever you did retire, it was for this moment.

Jacob: 09:48

That's why you saved the way you did. So I want to encourage you to get that mental shift and kind of get that going to say, hey, why did I save all of those years? Well, it was for this moment so I can go on that trip that I really want to go on or spend time with my spouse the way I want to spend time with my spouse or go visit my kids or my grandkids who live in a different state or city. Those are the things that are going to give you a fulfilling and enjoyable retirement instead of having the same amount of money or more money in your retirement savings than you start to retirement with. So that's the first thing.

Jacob: 10:16

Remember why you saved. The second tip I wanted to give to you today is do the hard work of discovering your why or your purpose in retirement. Okay, so what do you want to do? You know, where do you want to go? Who do you want to do all of those things with?

Jacob: 10:32

When you look back twenty years from now, fifteen years from now, thirty years from now, are you going to wish that you had spent more money and enjoyed your wealth while you had the chance to do so? Because the reality is most people spend more in the early years of retirement because that's when they're the healthiest and they actually have the time to go and travel and do all the things they wanna do. And later on a retirement, typically your expenses go up in in regards to how your health care or your health costs are going. So you have this first ten years of your retirement to really enjoy it and do the things you want. So when you get to twenty, twenty five years down the road, age 80, 85, 90, are you gonna look back at those early years in retirement and say, man, I wished I had done more.

Jacob: 11:11

I wish I had enjoyed the time when I had it or the health that I had when I had it, or will you regret not making the most of the opportunity you had at the time? And so the way I like to frame this is we have to do that work of like discovering what our purpose is in retirement. Maybe it's offering up your time at a particular charity or organization that you believe in. And so all these different things are there. So what is your purpose?

Jacob: 11:33

Or maybe it's to spend more time outdoors or go hiking more or go on a vacation every two months or whatever it is, like whatever you find value in and would be most fulfilling for you. That's what this is ultimately about. It's not a money thing in retirement. It's how do I use my money to ultimately have the enjoyable retirement and successful retirement that I want because success is not based on how much money you die with one day, success is based on how much you enjoy your time while you have it. So the money is not the end, it's just the means to the end of fulfilling your why and your purpose in retirement.

Jacob: 12:06

So that's number two, we've gotta discover what our purpose is and really think about, hey, I've been an employee or I've owned a business or whatever you come from. I've done that my whole career. Now I'm not that person or I'm not that thing anymore. I've got to figure out what the next step is for me. Okay.

Jacob: 12:22

So the first two kind of steps or tips here are more of a mental shift. We've gotta remember why we save, then we have to discover why we're doing what we're doing and kind of our purpose in retirement. And the third step is that you need to create a plan for your spending so that you can spend confidently. Because if you don't have a plan, you're never gonna have confidence. That's just at the end of the day, if you think about it, if you're gonna drive from New York to Los Angeles, well, you've gotta have a plan for it, right?

Jacob: 12:46

Am I gonna stop every hour, every three hours, every six hours? Where am I gonna get gas? Where am I gonna eat? You know, how far do I need to travel each day? All of those things, or should I fly instead of drive?

Jacob: 12:56

Like all these different things are coming to play. And so if you don't have a plan, then you're just driving down the road and hopefully end up where you've got to go, you've gotta have a map to get there. You gotta know where you're going and which roads to take and all these different things. If we don't have a plan, then we're not going be very confident in terms of being able to reach that destination. So if you don't have a plan, you're never going to have the confidence to spend well in retirement because we're really just scared of the unknown.

Jacob: 13:19

And retirement is an unknown kind of, you know, horizon that we're going through and walking through one day at a time. And if we do it right, hopefully you only have to retire once as opposed to multiple times. And so you're probably just scared of the unknown of what's to come. Right. So having a plan does not solve everything.

Jacob: 13:38

I'll give you that. But it does send you in the right direction. Like it does say, hey, we need to start in this direction. And obviously we're we're subject to and probably we'll have to make some changes along the way or alter course just a little bit or pull back on our spending just for a little bit while the market is not doing well, or maybe inflation's higher, all these different factors are gonna change throughout your entire retirement. But having a plan from the beginning allows you to make those small changes and tweaks along the way.

Jacob: 14:03

And that's what I call ongoing planning. If we have a plan, but no ongoing planning, well, that's a recipe for disaster. And if we don't have a plan on the front end and we just do planning each day, well, we don't know what our direction is or kind of the path that we are hoping to be on. So we don't know where we are or where our destination is, then we're never gonna get there. So how do I do this?

Jacob: 14:23

Like how do I create a plan for my clients? Well, number one, I like to do a three bucket kind of income plan. And what that does is, is we allocate certain dollars. And I've got episodes on this previously that you can go listen to, but we allocate certain dollars to achieve certain goals. So we have a short term bucket, which is gonna be your cash or your high yield savings or your money markets.

Jacob: 14:42

We have a midterm bucket, which is gonna be your bonds, your treasuries, your long term CDs. You've got your long term bucket, which is gonna be your stocks or your equities. And in each of those different buckets, they accomplish different goals, right? We want our cash to cover our short term needs in the event of market downturns, but we can't have all cash in our portfolio and have a quote risk off portfolio because we know that inflation is a real thing in twenty, thirty years from now, that cash will be decreasing in value and we need to have something that's beating inflation throughout retirement. That's why we have to have that third bucket, the stock bucket, right?

Jacob: 15:14

That one is gonna beat inflation over time so that we have money to spend later on in retirement. So I like to build out that three bucket kind of plan and strategy. And what that does is number one, it helps us produce an income plan. But then number two, it also tells us how we need to be investing to meet your income needs. Right?

Jacob: 15:30

I don't like to use strictly rule of thumb portfolio of sixtyforty or seventythirty or fiftyfifty. I don't like to do it that way because I believe that every person or every couple, they have different and unique needs for their retirement spending in terms of how they want to do things and what they need to do. And so I believe in actually building out the income plan first, and then we back into the investment plan to meet those income needs. So what that might mean is that you are maybe perhaps more aggressive than you otherwise thought you would be, or perhaps you're more conservative than you thought you needed to be. That's So one of the things that I like to do is build out that bucket strategy for my clients.

Jacob: 16:06

We've got to have that investment allocation, that investment plan, we've got to think about taxes and the implications of that and where we should pull money from and when we should do that, or should we be doing Roth conversions and does that help us long term or help our kids or grandkids one day from a tax perspective? And also I always use a retirement planning Monte Carlo projection kind of looking forward software to help see potential outcomes. Like if we do what we're trying to do here based on these assumptions of how much money we have, our investment allocations and how much we expect to spend each month, how are we gonna do? Like, are the odds of our success good or are they really bad? And so if they're really bad, perhaps we've got to tweak some of those different levers.

Jacob: 16:47

Maybe we need to increase our aggressive portion or a long term bucket in terms of equities within our allocation, or perhaps we might need to pull back on our spending a little bit. But I find most of the time people can spend more than they realize, which ultimately means if they're not spending that money, they're not enjoying that money to the fullest extent. So I like to use all these different tools to really build out a retirement plan that you can be confident in. And then also along the way, able to guide you through those different things. So with that being said, you know, one of the things that I think can help give you confidence in retirement beyond the dollars and cents, or just the number crunching is, is having a partner to go through retirement with, right?

Jacob: 17:25

And it's a really hard thing to navigate all these different challenges by yourself. So this might be self serving, I totally get it. But the fourth kind of bonus tip I might have for you here is consider working with a financial planner. And a good planner focuses on more than just the investments. They help give you confidence throughout your retirement because they're always looking out for you and looking ahead.

Jacob: 17:44

And they're not just saying, hey, you need to have a sixtyforty portfolio and talk to me next year. It's more of a fluid conversation with them to say, hey, look, you know, my kid is doing this. I think I might go move to that city. Is this something that we can do? Oh, let's have a conversation around that.

Jacob: 17:58

Is this possible? Do we want to sell our current house, buy another house? What's the difference in cost of living in terms of home prices and real estate and all the different markets and things like that? So all that to say is is consider working with a really good financial planner, somebody who can sit down with you, understand your concerns, understand your needs, understand your desires, and then build a financial plan or retirement plan for you to meet those different desires or needs. And so having someone, another human to do that with helps give you confidence to make sure you're on the right track because we are emotional beings as humans.

Jacob: 18:30

That's the way we're always gonna be. And a computer can help us absolutely. And AI even can help us absolutely. But at the end of the day, having someone who understands you, the emotions that are tied to all the financial decisions we have to make, I think is very valuable. So consider working with financial planner.

Jacob: 18:46

And if you want to have a conversation with me about what that looks like, feel free to reach out, just send me an email first to get started at jacobretirementanswers dot net. That's how we can get that conversation started. Or if you just simply have a question for me, I'd love to answer it there for you as well. So thank you so much for tuning into this week's episode of Retirement Answers. I really hope you found it valuable as we've talked about how you can spend confidently in retirement.

Jacob: 19:09

Remember, the three steps are you've got to remember why you saved. It was for this moment that you saved. You've got to do that work of discovering your why or your purpose in retirement, because if we don't have a purpose for our money, we're gonna always have anxiety around it. And then number three, to help eliminate all those fears, create a good plan for your spending so that you can spend confidently. Thanks so much for tuning into this week's episode.

Jacob: 19:31

If you found it valuable, once again, go ahead and rate and review there on the podcast platform that you're listening through. And I look forward to talking with again next week. Hey, it's Jacob again, and I wanted to extend a quick offer to you. If you have a question and you would like to have it answered here on the show, please email me at jacobretirementanswers dot net. And I'd love to answer that question for you right here on the show.

Jacob: 19:54

Also, I wanted to remind you that nothing discussed in today's episode is meant to be financial, legal, or tax advice. Retirement Answers is for educational purposes only. Thanks for tuning into this week's episode. I look forward to talking with you again next week.