About this time last year, I was anxiously awaiting the release of my book, Flipping a Switch. The phrase flipped switch on retirement spending is a metaphor for transitions that people face in the last third of life, and my book describes 35 of them.

Examples include creating a retirement “paycheck,” taking required minimum distributions from tax-deferred savings plans, health-care transitions, downsizing and simplifying, and keeping busy. 

The genesis of the book (and its title) is another key transition for older adults who amassed wealth during their working years: feeling comfortable spending down savings.

At a 2018 American Savings Education Council meeting, a presentation described a subset of retirees with a unique “problem”: They saved their whole life, are not comfortable spending down any savings, and their assets keep growing. 

The speaker noted that “we need to teach people how to ‘flip a switch’ from saving to spending in later life.”

Recently, I attended a webinar by the Employee Benefit Research Institute (EBRI) that presented research about retiree lifestyles using data from a survey of 2,000 households in the 62 to 75 age range with under $1 million in assets.

A key takeaway: Retirement is not a uniform experience for older adults with varying demographic characteristics.

Five distinct lifestyle categories were identified: Struggling (18 percent), Just Getting By (12 percent), Average (28 percent), Comfortable (22 percent), and Affluent (19 percent). Another key finding was that most retirees are reluctant to spend a significant portion of their financial assets, often due to fear of the unknown (e.g., long-term care expenses) or running out of money.

Though it may be difficult to view “too much savings” as a problem, given that so many Americans are still struggling as a result of COVID-19, there are downsides including working longer than needed, unnecessarily restricting spending to less than what one can afford, and unnecessarily restricting gifts to family members and qualified charities.

What to do? Below are six suggestions from the EBRI webinar and my book Flipping a Switch:

Calculate Your Net Worth 

Tally up household debts and subtract them from household assets. The result is your net worth. Many people have no idea how much they have in total (e.g., savings accounts, investments, and property value). It is difficult to know what to spend in later life if you don’t know what you have.

Step Outside Your Comfort Zone

Practice spending on “big ticket” items. Expect that this will feel very uncomfortable “going against the grain” of long-standing habits such as buying items at deep discounts, bragging about frugal purchases, flying coach when you can afford business/first class, and gifting modestly.

Start a Spending Diary

Keep a record of decisions that you make and emotions that you feel when you spend money. It is not uncommon for people to feel a psychological loss when they see their account balances decrease after making withdrawals from their savings.

Answer Some Hard Questions

Why did you amass a lot of money if you do not plan to spend it or gift it? What are you waiting for? Will your health get better with age? Do you already have enough money to be “financially independent” (i.e., not dependent on a job for income)? If you don’t spend your savings, who will?

Automate Savings Withdrawals

Seek out financial products that facilitate “spending down.” If making cash withdrawals from savings makes you anxious, “set it and forget it.”

Options include purchasing a fixed annuity that pays you a monthly income, managed-payout mutual funds that provide monthly payments, bond and certificate of deposit “ladders” (i.e., varying maturity dates), and automatic withdrawal options for mutual funds.

Get Help With Financial Decisions 

Try some online calculators to reassure yourself that it is okay to spend down your money. For example, Monte Carlo calculators estimate the probability that savings will last a certain time period, typically 30 years.

Another helpful resource is a certified financial planner. If you have accumulated enough money to “flip a switch,” spend a little on a few hours of a professional advisor’s time.

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