Why Retirees Underspend — How to Enjoy Your Money Without Fear

Are you underspending in retirement? Many retirees save diligently for decades but struggle to flip the switch from saving to spending. In this episode of The Capitalist Investor, Tony and Derek reveal why so many people spend less than they could — and how to enjoy retirement without fear of running out of money.

We’ll cover:

• Why retirees underspend even with strong financial plans
• How a Monte Carlo simulation shows what you can safely spend
• The difference between saving for legacy vs. enjoying life today
• Why the first 10 years of retirement are the most important
• Practical financial planning strategies to spend confidently while protecting your future

If you’ve ever wondered “How much can I safely spend in retirement?” or worried about outliving your savings, this episode will give you clarity and confidence. You worked hard for your wealth — now it’s time to enjoy it.

Transcript

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Welcome to the capitalist investor. Today we are going to talk about retirement spending and how you could actually be underspending in retirement. I said it right. You could enjoy retirement more. You could actually get that pass to spend more money, So all right today we're going to talk about spending in retirement. And it's actually so I've been trying to tell a lot of clients this over the last several years because I you know, basically ever since Covid the market has been fantastic. I mean, I know we could have another another show on why you should retire now. Right. There's ways to lock in these losses are not I'm sorry not the losses but the gains. And ride this thing out. So like because the accounts have all just been melting up. Yep. And we have been talking for, for years about, you know, having a financial plan, knowing what you can and can't do and what we are starting to find. And it's and it's actually mass people that we talk to work with, whatever it may be, where they are just they just they don't know how much money they really have. Because and it's not because they don't know. It's because here's the pedigree of a successful client from the many years I've been doing this. Saving. They don't know how to spend. Yep. So they just save. And then when I magically come around the corner and say hey you know Joe and Mary guess what. You can spend more money. They look at me like I got three eyeballs and they just freeze up. Yeah. And then, you know, and then, you know, meet with them in the next quarter, maybe the next year when we rebuild their plan, be like, hey, your plan is even better. Do you start spending more money? And they're like, no. So, you know, we build that one part in the financial plan called the Max plan, especially if your plan is, you know, very successful. Right. You know, we kind of shoot for an 80% Monte Carlo. That means eight out of ten times you're not going to run out of money by the time age 95 is typically when we build plans and again, the reason they don't spend money when I'm finding is, I mean, honestly, I had a I had a case, about a year or two ago. My, clients are approaching 80 and they just they're looking around saying, we have all this money, like, how do we spend it? Like, why didn't you tell us? And we like, we have been for almost ten years, but it doesn't sink in. It just and I'm not going to force you thinking I'm forcing to spend money. But it's like I can only tell you so many times and show you so many Monte Carlo analysis and say, hey, actually we have some of the best software in the planning industry, like it's legit. We got really smart people building the plan. We built the plan. Conservative we have you live in the 95. We we toned down rates of return inside the plan. Our investments have out been pacing the returns in the plan. So these are the things that I backpedal with with clients. And it's don't get me wrong, this is not a bad problem to have. It's just you should enjoy it more because you built it up and now is the time. If you're in that category. Yep. For sure. Yeah. You know, we have to give I, a little bit of credit. Like, honestly, I never would have thought about this topic ever in a million years. But then, as Tony and I, started thinking about it more is like, we run into this all the time, you know, all the time. And what Tony said right off the rip there was is exactly right. You know, being able to save throughout your life, you know, has set you up in a great position to retire. But it is extremely, extremely hard to turn off the savings switch and go into the spending mode. It's just difficult. You know, it's a, generational thing, right? You know, it's, you know, whether it's, you know, they're, you know, parents from the Great Depression or, you know, Irish Catholic guilt or whatever the case may be. It is it's just hard for people to, you know, accept the fact that that they can spend more, that Mac spending number that you mentioned, you know, I run it for all of my successful plans as well. I've seen that Max bend number over$100,000 a year. Yeah, that. It's crazy. Yep. And they were accustomed to spending, like, 60 grand. I'm like, hey, you can spend 160 grand and get away with it. Yeah, you can increase your spending by 200% and still have a very nice working plan. Right. And and honestly, sometimes when I build the plan, you know, like we show like ending estate value because we that's when we start pulling levers inside the plan. And the plan is still 100%, but like, hey, I have you spending more money, you're still 100%. But yeah, you're ending estate value went down. Yep. And and then I try and explain to him like, hey, well, Tony, you know, I got $2 million today. And this says when I die at 95, I'm going to have like 5 or 6 million. And I'm like, yeah, it does. That's more money than you have today. And it's and it's a combination of a few things of you know under spending. But I also there's you know there's this silent headwind inside that plan and it's inflation right. I don't know what $5 million looks like in 20 years or 30 years, depending on the runway and how, you know how old the client is when we're building the plan. But I don't know. I mean, it could be the equivalent of $2 million, like, hey, your your your principal today didn't really move in future spending scenarios. Yep. Right. So that's the other thing. So I would just say that if you if you haven't had it done, if you're, you know, if you're working with us or you're working with another advisor, getting these simulations done is very important because maybe it'll help you understand that if you're not retired, maybe it is time to retire. Right. You know, the accounts have been again, I mentioned this before, but accounts have been melting up. And this is you know, there's again, another episode I'd like to have is like, is now the time to retire? Right. Because even with, you know, our current economic state and that's maybe not like jobs and inflation and stuff but like what the, what our government is doing and making easy monetary policy. They're going to be cutting fed rates soon. These are all, you know, I guess Kindles to spark the fire of the market, to continue to move forward. Right. So again, it's there are things that we can instill in a financial plan, and everyone's different, obviously, but things that we can instill so that you can experience an earlier retirement than you thought, or just a more luscious baby retirement, than you than you thought of. Yeah, absolutely. You know, it's, and, you know, if you are a client and you're listening to this and you might think, think we're talking about you, we're not, you know, it's a very, very, very common thing. You know, I'd say, I don't know, I have the same conversations with, you know, eight out of ten of my clients, perhaps seven out of ten, something like that. But, you know, it's it's one thing to have, you know, the, the overall, you know, the overall mentality about money, and having to change that in retirement. But these reports do kind of show you the kind of the, the cold, hard truth. You know, it's like you can either spend this money now or it's going to get passed down to your children or whoever your errors are. I've been having that conversation a little bit more. You know, I don't think it's really, you know, moving the needle too much, but. But that's really what it comes down to. You know that you you work your whole life. You know, you do the right things. You save in to various plans. You come up with a financial plan when you're, you know, 50, 55, you get it all squared away. All of that work and effort has been. So you can enjoy your retirement. And, and, you know, we always say, you know, the first ten years of retirement is the best ten years of retirement. So, you know, if you're working with us, you know, or you're, you're not, if you're not, you know, the getting a plan done for you is going to give you some much more confidence to be able to to, to spend what you want to and enjoy the retirement that you want to. And you don't need to go like, hey, if like you said, you've had scenarios where it's like, hey, man, you can actually double my much, you spend. I'm like, please don't do that. Like, I try and say, like, why don't you ease into it? Right, I know, I, I've, you know, I've, I've known you for a long time. We've been working together. I know how you you know what your thoughts are on your financial, you know, livelihood and things like that. Like you don't need to just take the advice and run with it, or you can ease into it or like, hey, there's like, hey, I want to spend an extra couple grand on this vacation. Just run it by us now. It's like, that's all you need to do. But again, like, why would you want to do this right now? Again, accounts are up. Spend the money. Another reason. Spend the money while you're still able. Physically. And while the markets are all time high. You know the old saying like, you know, you sell high, you buy low, and you think, well, this is the time you would be selling high and reaping the rewards of this market melt up we've been experiencing for years. So, you know, I guess with that being said, now it's you can't, you know, the old saying you can't take it with you, right? You know, you don't get a gold star for taking it with you. So but maybe the maybe the goal is different. Maybe legacy planning is for you and as your top priority. And that's fine too, right? So maybe maybe another conversation I've had more of like, hey, I want to, I want to spend all my money and, you know, bounce. My last check is like, hey, I actually want to leave behind the most amount of money. Then the conversation actually shifts a little bit and says, okay, well, who are we investing for? My kids. My grandkids. Right. Okay. How old are they? Because I know how old you are. And you might be 60, 70 or 80 years old. How old are they? Oh, they're 40 or 50 or they're my grandkids or 20, whatever that those numbers that like now it's like, okay, well, you're if that money's for them, we should consider investing for them in the way they should. Right. A little bit more aggression. Right. Because that's for them. And also another thing to consider if legacy planning is important consider gifting now. Yeah. You know building and gifting strategies inside of the portfolio about you know what I think the gifting limit is $19,000 per person per year at this point. What we should maybe consider that this way. You get to actually see them enjoy it, and know that it's going for a good cause. Maybe paying down debt or going on a family vacation or or your kids helping their kids. Right? It's this. This whatever your goal is. Right? And that's the that's actually the main point. What is the goal? All right, so, a lot of different ideas and strategies that can go behind this, but if we really just take a look at how do we really want to do this? And I, I understand the saying, but every time I hear it, I get irritated because I don't say it and it's like the go go years, right? Hey, I'm retired. It's a go go years. That's like, that's 60 to 75, you know, age range. So, you know, we're still relatively healthy. We're active, we want to travel, we have hobbies, we have time and money to spend on them. And the health to do that and just want they have the camaraderie with other friends and family members. Right. So then somewhere at that, that 75 to 85 range, we just start slowing down, right? And spending less money naturally because we're just going on less trips and, you know, maybe just worrying about other stuff or watching the sunset every night. I don't know, like that's I hope I make it there like that. But anyway, and then once, you know, if we're, if we're all lucky enough to get past 85, you know, then there's, you know, some you know, health issues that we should be planning for. And that's what we could be planning for today. If you plan so healthy, you can spend more money. We can, you know, save your your accounts in your family on the back end, building out long term care strategies. Right. Right. And what we we need to do that now. And there's and there's nothing wrong with that. There's some you know long term care used to be a real bugaboo where you don't if you don't if you don't what's the old saying. If you don't, if you don't use it you lose it. Right. Right. It doesn't work that way. Some of the the policies that we implement it, it doesn't work that way. If you don't use it, the money is going somewhere else, somewhere down the road. But if you do use it, it's in your best interest because it's going to preserve the assets down the road. Yep. For sure. So yeah, something that just popped into my mind as well as we're going through this, you know, the, the 4% rule. Yeah. Right. We've we've done shows on basically saying, hey, you know, if you're if you're just blindly following the 4% rule, you know, you could run out of money, in retirement, right? But at the same point in time, the people we're talking about here, if you're only spending 4%, you're probably going to end up with more than what you started with. So that is why all of this stuff is so personalized, so individualized, like you're the you can't go on the internet and have I run a report for you and tell you like, oh, I need to be doing this. I need to be spending that. It's because it is based on your specific situation. You know, like there's there are many nuances in, in people's lives, how people retire, you know, what they do. And that's why, you know, I think it always, all always comes back to creating a plan for you that that works for you and your lifestyle and your wishes. Yeah. You know, it's like this, this, this episode seems like a real, like, motivating, high powered thing. Like. Hey, Tony. Tony, Derek said I should start making more money or spending more money. Now, the the again, I'm as the the optimist in me and the pessimist in me as an you know I'm engineering mindset is like listen again. The markets are melting up right now and they could for the next couple of years. But we should know by just experience that the market doesn't always go up. Right? Right. And so if we are experiencing those years or we want to a plan needs to be devised. You know, you know, I guess built out for that scenario like, hey, average bear markets three years if I plan on spending X for vacations and all this stuff, we can dial that money aside right now. So if there is a downturn, it's sitting in our money market that's paying, you know, 3 or 4% or whatever it may be right now, that it's just it's not fluctuating with the market. And we still have access to that because we're not selling it low. Yeah, right. We wouldn't be selling assets. Well we were spending an asset that's flat right. So again we have to do this because that's not all puppy dogs and ice cream. It just happens to be right now. And if we do go through a downturn okay, maybe there are a few years in in that realm of travel and doing things and, you know, having fun after retirement, maybe you have to take a year off or two if the market were to go backwards. Right? And we and we lose some ground, but we can design strategies for that if that's the goal. But like Tony, I don't want to I don't want to miss out. I don't want to lose ground. Right. Okay. Let's sit down and talk about it. So and you know, I think, you know, we'll, we'll probably and I can tell Tony wants to do, a similar show about, you know, about, the planning, involved in all of this, but, you know, the I am a huge fan. This is kind of off topic, but as the market has melted up, you know, like in the past, I, I'm a huge fan of taking some of those winnings and and putting them on the sidelines and in some sort of, you know, guaranteed product where that can throw off an additional, you know, income for you. Right? So, you know, if you've made $100,000 in the markets and you know, you're in this situation where you can spend more, you know, you can lock that 100,000 up, get a pretty good return on it and have a predictable income every year. That is just extra spending money, right? And that is just by using good planning, and understanding your specific plan, your specific situation, taking risk off the table, you know, again, if you go out there and you Google, you know, annuity or CD, you might get negative results. But, every product, every investment does have a specific purpose in certain people's portfolios. So it is it is not a one size fits all type of situation. But that's where we take those scenarios and we pump them into the plan and see how the plan reacts. Yeah for sure. Right. And again when we build the plans we are building, you know, I don't want to see lower rates of return than we have, but we are because again, we built you maybe we built a plan for 5 or 6% rate of return, but you got 12, right? Fantastic. Right. Things are going to be better in your plan, right? But I'm always going to build a conservative rate of return. And obviously our goal is to over, you know, overproduce or, you know, over achieve that particular rate of return. You know, and I say that to some people and I try to say it in different ways. I'm like, I'm not getting you 5 or 6% the planning. I have to pick a percentage inside the plan. And I'm not going to give you a 12, right? And say, yeah, we're going to get you 12 every year. No, I want to do something more conservative and outperform right all over achieve. So anyway, take us home. All right. Well good stuff this week. If you guys have any questions, comments, any ideas for our show? You know, hit us up at info@connect.com. Yep. And and if you have, you know, if you have a plan or need a plan, obviously, you know, hit us up with the info at WP, but, you know, building out the stress tests are very important. And we've been doing that for years and years and years on different scenarios because again, everyone's different. Yep. Right. But that's that's the crux of all of this. Things change and they have been changing, you know, with how the markets are reacting and how people are feeling about, you know, their work life balance and things like that. So it all starts with, you know, getting the plan dialed up and figuring out what we can do and get away with it. Yep. Absolutely. You know, we can't stress it enough. We say it every pretty much every week. If it's with us or somebody else, just just make sure you have a plan. So, your, your retirement years can be as as fun and productive as possible. Absolutely. And with that, we'll talk to you guys next week. The opinions expressed in the podcast. Are for general informational purposes only, and are not intended to provide specific advice or recommendations for any investment, legal, financial or tax strategy. It is only intended to provide education about the financial industry. Please consult a qualified professional about your individual needs. It.