The Compound and Friends - Overcoming a Reluctance to Spend in Retirement (with Tadas and Ashby Daniels)

Episode Date: April 15, 2019

"Retirement should be one of the most fun times of your life. But, generally, that’s only possible if you’re comfortable spending your life savings." Ashby Daniels, a retirement planner at Shorebridge Wealth Management, who blogs at Retirement Field Guide did a post about why it can be really difficult for retirees to change gears from saving for retirement to spending in retirement. Tadas Viskanta got him on the phone to talk about why this is the case and what planners and retirees can do to make the transition a little easier. You can read more about Ashby’s take on spending in retirement at his blog, Retirement Field Guide   https://retirementfieldguide.com/spending-in-retirement/ Enable our Alexa skill here - "Alexa, play the Compound show!" https://www.amazon.com/Ritholtz-Wealth-Management-LLC-Compound/dp/B07P777QBZ Talk to us about your portfolio or financial plan here: https://ritholtzwealth.com/ Obviously nothing on this channel should be considered as personalized financial advice just for you or a solicitation to buy or sell any securities. Please see this 3,000 word terms & conditions disclaimer if you seriously need this spelled out for you. https://thereformedbroker.com/terms-and-conditions/ Hosted on Acast. See acast.com/privacy for more information. Learn more about your ad choices. Visit megaphone.fm/adchoices

Hey, Ashby, how's it going? Great, man. How about you? I'm all right. I'm on the line with Ashby Daniels of Shorebridge Wealth Management in Pittsburgh and the author of the Retirement Field Guide blog. I asked Ashby on today to talk about a recent post of his entitled Spending Your Life Savings, Two Ideas for Overcoming the Fear of Spending in Retirement. You know, in my opinion, this is an important and under-discussed topic. Financial planners spend so much of their time helping clients build up their assets so that they're available to them when they retire.

But for some people, making that transition from saving to spending is a really difficult one. My colleague, Chris Venn, called this an epic mindset switch. And so, Ashby, you've written about this. Maybe you can jump in and tell me why this is the case. Absolutely. Well, it's funny that you mentioned Chris because I was going to mention him to you as well in the sense that, obviously, I know he's talked about the idea that people are reluctant to spend in retirement. And I think it's kind of funny that so many people think my job is to help them keep them from spending when sometimes that's true, but more often than not, especially being a retirement planner, my job is to encourage them to spend prudently.

And so, yeah, that's kind of where this post came from is that I, you know, I run into, I run into this on a pretty regular basis where clients are reluctant to spend their life savings. And so it's, I find that to be kind of ironic, But in any case, you know, I think it comes down. I think the reluctance at least comes down to two issues. And one is and I kind of titled it self-worth equals net worth. And what I mean by that is our net worth once you get to retirement is pretty much your only material representation of your cumulative working years. You think about that. You've been saving your entire working life and then you get to retirement and that's all you've got. So spending those dollars can feel like you're kind of compromising your future. And so most people are at least cognizant of the fact that they need to

make their money last as long as possible. So that's the first issue to overcome. Secondly is how you grew up. And many retirees, certainly the ones that I grew up with, we're not trust fund kids, nothing wrong with that, but most of them are self-made. And so they grew up in a lot of cases with very little or nothing at all. And so when you grow up with little or nothing, the portfolio that you've accumulated through the previous, say, 40 years of working is the comfort that you'll not only end up not back where you is it it's the comfort that you won't end up back where you started so it kind of becomes the quote insurance policy uh that you won't be poor again and so go ahead no i was going to say i was just going to i was going to jump

back to that first issue because i think it's i think that's a really important one and i think especially you know um you know financial you, in the financial planning industry, we're oftentimes dealing with people who are, like you said, sort of self-made. Either they have started their own business or are professionals in the sense that, like you said, your net worth is very much a tangible representation of, you know, 30, 40, 50 years of work. And that's, you know, that's a really, you know, really important thing to people. And you can see why that might be, you know, preventing them from wanting to draw down that those savings. Well, not only that, but it almost encourages the act of becoming too conservative of your portfolio as well. Because you still, in a lot of cases, you still have the, if the average life expectancy or average joint life expectancy of a couple retiring at 62 is roughly 92, you still have 30 years to go.

But when your entire life's work is wrapped up in a certain net worth number, you have a natural reluctance to kind of put guardrails all the way around it. And in a lot of cases, that is making your portfolio more conservative than it maybe should be. So that's a whole other issue. Yeah, nobody wants to see that number tick down. I mean, I think that's just a natural reaction. Exactly. So, you know, the thought process of this post was to come up with a couple of ideas that might help people get more comfortable spending. And so I'll jump there if that works for you. Absolutely, because I think the first point you made in your post is an important one, because I think most of the time we talk about, you know, in financial planning,

we're talking about trying to come up with withdrawal strategies that won't deplete one's net worth, but there's more to it than just that. Absolutely. And so I think that, at least in regards to the post that I wrote, I mean, to first state that there is no optimal withdrawal strategy. We won't know that until 30 years from now. And so I think that also is something that gets lost in the shuffle, particularly in our industry, is the sense that there is this, quote, optimal withdrawal strategy. Well, we can only look backwards and see that it was optimal. But looking forward, we don't know what that strategy is. So we can only just try to try to identify a strategy that is going to make sense. And that the client, I think this gets overlooked a lot of times, is that the client. Because if they can't understand it, they're not as likely to stick with it. And so that was the first idea with regard to an idea of how to get comfortable spending is establishing a withdrawal strategy that you actually understand.

I'm not saying to go blindly and start making distributions or do whatever your advisor says. you know, distributions or do whatever your advisor says. In my opinion, if the withdrawal strategy that your advisor is recommending is too complicated, well, then you probably need a new advisor. And so, you really need to understand it. And so, because that's what's going to help you stick with it when the going gets tough. And I find that, you know, that's led me to believe that I think part of the reticence of people spending is do I understand my strategy? I mean, there's a study done on retirement literacy by the American College said that only 38 percent of people know that that basically only 38 percent of people are aware of the 4 percent withdrawal rule. Now, not to say that that's the end all be all. But the fact is that I think you'd be hard pressed to find a financial advisor that understands what the 4 percent withdrawal rule. Now, not to say that that's the end-all be-all, but the fact is that I think you'd be hard-pressed to find a financial advisor that understands what the 4% rule is, but yet only 40% of those people retiring actually know what that is. And so understanding your strategy, I think, is critical. So that was point number one, at least. Yeah, no, I think it's kind

of the other side of the coin of understanding your investment strategy. You know, the worst thing that can happen to, you know, an advisor and a client is to put that client into an investment strategy that they don't understand. And so, like you said, at the first sign of trouble, you know, there's going to be, you know, there's going to be issues there. And so, like you said, you know, the flip side of that is spending. And so, having that common ground is important. Absolutely. So, then the second piece is, I know we're getting close on time. So, the other piece that I wanted to mention is the idea of a blow-it bucket, or you can also call, I've since been aware you can call it, say, a freedom bucket or something like that, is the idea that you set aside an annual allotment of money that is set aside specifically to just kind

of blow it. One of the things that I think that retirees get very reluctant about is what they would view as imprudent expenses or irresponsible expenses. Well, part of retirement is about having as much fun as possible. You've earned your way there. So if you really want to fully enjoy yourself, you need to have some fun money. And so the idea of the blow a bucket, it came to me from a specific conversation I was having with a client of mine. And the idea was that, look, let's set aside a certain amount of money to just blow it. I mean, I really didn't know what else to call it. And so, you know, that's the whole point. And the sole purpose of that is really to encourage more freedom in spending with the knowledge that you're not

compromising or theoretically not compromising your retirement or legacy goals that you may have had. And so just to encourage a little bit more freedom in spending, which hopefully leads a little bit more enjoyment in retirement. Yeah. and I think an important point there is also that, you know, like you said, that spending doesn't necessarily need to be frivolous, as it were. I mean, it could be donating money to charity. It could be, you know, putting together, you know, a family trip for the kids and the grandkids. You know, there's a lot of different ways to think about it that don't, you know, that don't include, you know, a new Porsche in the driveway.

No, absolutely. I mean, the goal is just to allow a little bit more freedom in spending, a little bit more comfortable doing things that you really want to do. Like you said, whether that's giving money away or, you know, helping some kids out or whatever your, whatever, wherever your heart lies, you know, that's the idea.. Just, I think, add a little bit more enjoyment to your retirement. No, I think that's a great point to end on, and I will encourage everybody to check out your blog and check out that post. And, you know, Ashby, thanks for coming on, and we'll talk to you again soon. Thanks so much for having me, Todd. I appreciate it, and I love the work you guys are doing over at Riddholtz.

Keep up the great work. Thanks. We'll talk to you later. Take care. Bye-bye. Bye.