Author’s note: Advisors can help clients navigate the psychological shift from “saver” to “spender” as they transition into retirement. The following is an excerpt from my newly released book, “Encore: A Higher Achiever’s Guide to Thriving in Retirement,” which explores this topic.
There is a subtle but important paradox gnawing at our clients’ peace of mind as they think about retirement, and it has to do with the all-important notion of having a defining purpose that drives direction and action. Without that purpose, any of us can feel adrift. For nearly everyone we coach, being a provider and building financial security have served as fundamental sources of purpose since they started their working lives.
So what does it mean to face the reality that this purpose has been fulfilled — that all the work and diligent saving have, in fact, created a condition of true financial freedom? Shouldn’t there be a sense of elation? For many, there is not.
Retirement can trigger deep and confusing financial anxiety. “I won’t be earning a living anymore,” clients will tell me in a discernible key of distress. Yet rationally, they know they have amassed more than a comfortable nest egg. In our experience, there are a couple of keys to solving this puzzle.
A New Mindset
Particularly since the advent of the 401(k), we’ve been trained to save from the moment we started working. The danger of spending more than we’re bringing in is pounded into our psyches before we’ve even taken our first vacation as a working adult. We learn that spending more than we earn is irresponsible, a mistake, if not a flaw in our character. Now, suddenly, retirement requires us to overcome that trained response. As we explain to our clients, you must shift from a saver to a spender.
It’s time to embrace the notion that you squirreled away a lifetime of nuts so that one day you could finally eat them. A new purpose appears on the horizon, beyond that of provider. As I noted in chapter 7, the opportunity to find new metrics to measure growth and progress, beyond expanding one’s net worth, emerges. This single pivot is a critical moment of transformation.
The way forward is to shift from the mindset of a saver to being comfortable spending. But, critically, the spending must be aligned with new purposes that are meaningful. That is to say, we must reshape our belief system around money and get very clear about what purposes (beyond mere security) have been enabled by the money that has been saved. It is for this reason we spend time with our clients helping them answer just this question.
5 Eye-opening Questions
Our favorite inquiry is to explore what money represents to a client beyond safety and security. For example, does it represent:
A way to care for others?
Access to enjoyable experiences?
A source for charitable giving?
A way to empower opportunity?
All these things?
As we map the contours of possibility, we can often see anxiety turn to excitement about the many ways abundant financial resources can fuel new areas of purpose and meaning. The emerging attitude might sound something like this: Well, it’s actually appropriate that I’m spending, since the whole point of saving was to draw on it one day. This means that I can help my niece with her college tuition and also provide a safety net for my mother if she needs it. And we can take some of the big trips we’ve never managed to make happen.
Creating ‘Permission Budgets’
As these ideas take shape, we propose that our clients dig into their financial positions at a more granular level than has previously been necessary. We suggest a concept called “permission budgets” that are designed around the most important purposes for their financial resources. If travel is one, then we propose earmarking a certain dollar amount per year so the money is already “spent” in the overall game plan.
A similar approach can be taken with charitable giving and areas of planned family support. In this way, it is possible to analyze the long-range effects of spending these resources along the way and adjust accordingly. It avoids the decision fatigue of wondering whether these expenditures make sense every time the need or opportunity arises.
Debunking False Assumptions
Other important aspects of this analysis include debunking the false assumptions many of us have when we think about our retirement accounts. For one, we imagine that our patterns of spending and consumption at age 80 will be the same as at 60. We also imagine that we will want to maintain the same portfolio of real estate 20 from now. The reality is that most people begin to rationalize the empire” as they age by selling second properties or downsizing into smaller homes.
As we age, the footprint of our lives tends to shrink and our spending along with it. Finally, many assume they will never again make money. We remind people that retirement does not necessarily mean an end to earning power. No one we work with wants a life of pure leisure for the next 30 years. And while they might struggle at first to see the array of opportunities for continued engagement, we know from experience they are abundant and, in many cases, remunerative.
Elizabeth Zelinka Parsons is a retirement transition expert and author of “Encore: A High Achiever’s Guide to Thriving in Retirement.” Drawing from her career as a lawyer and retirement coach, she helps high-achieving professionals navigate the complex journey from intense careers to a fulfilling, purpose-driven retirement Her book, available wherever books are sold, provides actionable strategies to embrace this life transition with confidence and clarity. You can get in touch with Elizabeth through her firm’s website, encoraco.com.
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