S2 E46: The 5 Hardest Spending Decisions in Retirement

Austin Wilson:

All right. Hey, hey, hey. Welcome to the Wealth Mindset Show where the Hixon Zuercher team will have conversations on managing wealth, navigating retirement, and making smart decisions for a secure, meaningful future. I’m Austin Wilson, chief investment officer at Hixon Zuercher Capital Management.

Josh Robb:

I’m Josh Robb, Director of Wealth Management at Hixon Zuercher Capital Management. And joining us today is Jessica Hinks, one of our senior wealth advisors, and we are going to be talking about five decisions in retirement that are hard to make.

Austin Wilson:

It seems like-

Josh Robb:

Now before we do… We got to figure out what’s going on with life.

Austin Wilson:

There’s a lot going on. I mean, there’s a lot going on. I was on vacation.

Josh Robb:

Yes.

Austin Wilson:

We went to Lake Michigan.

Josh Robb:

Yep.

Austin Wilson:

Beautiful.

Josh Robb:

Beautiful area.

Austin Wilson:

Lake Michigan, if people knew how great it was-

Josh Robb:

Don’t tell everybody. It would get crowded.

Austin Wilson:

I know. They would put the actual coast out of business.

Josh Robb:

The only trade-off is, I don’t care when you go there-

Austin Wilson:

Cold, cold water.

Josh Robb:

… it never is warmer than freezing.

Austin Wilson:

No, we went to-

Josh Robb:

It is horribly cold.

Austin Wilson:

We were on Lake Michigan. It was a great vacation. My younger two kids had never been to the beach before, and our middle one particularly just loved it. But the water-

Josh Robb:

Is cold.

Austin Wilson:

… was 60 some degrees.

Josh Robb:

And now we’ve been in there early August, so I’m going to say peak temperature.

Austin Wilson:

Still cold.

Josh Robb:

Freezing. Freezing.

Jessica Hinks:

It’d be great for your anti-inflammation journey.

Austin Wilson:

Yeah, there we go. So I guess that’s a cold plunge all the time. But Jensen and I, we would go, my little brother, we would go out into all the way to the buoys. It’s clean water, it’s clear water, but it was like a bath. But you get used to it after a while.

Josh Robb:

Not a bath. Not a bath.

Austin Wilson:

Our middle one, poor Whitley, she loved being in the water with a little puddle jumper on, and she had the most purple blue lips.

Josh Robb:

Oh yeah, shaking and “I’m not cold.”

Austin Wilson:

She’s not disliking it in any way. So anyway, beach was us. What about you guys?

Josh Robb:

Yep. We had our vacation a little bit earlier. Now we’re back in school, all the fun sports stuff, watching that. We kicked off fantasy football.

Austin Wilson:

Literally.

Josh Robb:

Yeah, literal kickoff of that. But for my youngest son, he’s in three separate fantasy football leagues because he loves sports and is competitive. He had a draft at 10:00, 11:00 and 12:30 on one day. So he was just sitting there just having the time of his life. He overanalyzes everything, and so it’s fun to watch him as he’s making decisions on who to play.

Austin Wilson:

A lot of Detroit players.

Josh Robb:

Because it’s a game, right? And so you don’t know what’s going to happen. So they put projections on there and then the game happens. He’s like, “Why would they say he was supposed to get 30? You only got 26.” And I’m like, “They don’t know. They’re just guessing.” But he bases everything on these projections and it’s fun to watch. It’s a good time. Jess?

Austin Wilson:

Jess?

Jessica Hinks:

Well, at the time of this recording, we’re entering in the second weekend of NFL football.

Austin Wilson:

True.

Jessica Hinks:

So last weekend, my very hardworking husband, Will, who most never relaxes, commandeered the TV Sunday afternoon to watch all the games, right? Red zone it up.

Josh Robb:

He’s a Steelers fan.

Jessica Hinks:

Sure, he is.

Josh Robb:

Yes.

Jessica Hinks:

And so all day, my five-year-old was like, “Dad, why are you still watching this?” And at the end of the day, she’s like, “You’ve been watching this all day, Dad.” And I said, “Well, Allison, this is going to be every Sunday, literally until the end of the year.” And Will’s like, “Actually into next.”

Josh Robb:

Until February.

Austin Wilson:

February.

Jessica Hinks:

She has no idea.

Austin Wilson:

Super Bowl’s in February.

Josh Robb:

I think it’s on Valentine’s Day.

Austin Wilson:

Oh, wow.

Josh Robb:

Maybe.

Austin Wilson:

Marketing genius.

Jessica Hinks:

But I’m excited to talk about spending decisions in retirement.

Austin Wilson:

Yeah. So it’s one of those things where people spend 30 to 40 years of their lives training themselves to save more and putting a lot of effort in the accumulation side of things. And that takes a lot of work to undo when you’re in the decumulation phase and it’s okay to spend money kind of phase of your life. So for a long time people are saying, hey, we need to spend less than we make. We’re trying to maximize retirement contributions. We’re trying to delay gratification and accumulate assets. It’s the one side of the coin. Then you retire and things change. And you go on the other side of things where, well, you’re actually not making an income anymore in a lot of cases. You’re spending what you’ve accumulated. So that’s a totally different mindset change. You’re not probably making as much contributions, you’re taking money out and you can actually and hopefully enjoy some of your assets and have some gratification because you put off and lived on below your means for so long.

 

[03:39] – Why Spending in Retirement Is So Hard

So let’s talk a little bit about that mindset change from, okay, now I’m not going to spend, I’m going to delay this right now to, okay, it’s okay to spend. So why are some reasons that maybe that mindset switch is so difficult?

Josh Robb:

Yeah. And what we’ll look at is some specific pieces of spending because there’s some baseline spending that everybody has to do. That’s a little easier to withdraw and justify when you’re like, well, I got to pay my utilities. I got to get groceries. We don’t see as much kickback from retirees on, oh, I’m so stressed about these withdrawals because it’s just part of life. It’s harder for them to say, “Hey, there’s this thing I want to do that’s kind of above and beyond what I need my basics and I’m having a hard time justifying it.” And that’s really what we’re going to spend a lot of time on. Basics are there. They have to do it.

Jessica Hinks:

Add to that too, this tends to be the same group of people. So in the working years, there’s people who are afraid to spend on the extras because they don’t know how much they need to be saving. So they feel like anything that’s not a necessity, they just need to save because they don’t know how much they actually should be saving. It’s the same thing here. It’s a lack of knowledge. They don’t know how much they can spend, therefore they feel like they can’t spend anything. So it’s same problem, lack of knowledge. So we’ll talk through these five decisions.

Austin Wilson:

And I would say that based on my understanding from conversations with people like you, we have just as many clients, if not more, who are in the, we’re encouraging them to say it’s okay to do things, to spend some money, to enjoy life as it is, “Hey, let’s be a little cautious here.” It’s because it is more of a mental thing than it is a numbers thing.

Josh Robb:

It is. I mean, it’s kind of that where the people we work with, people who hire a financial advisor are mindful of their spending and their goals and their saving. So they’re more likely probably to be those that are going to lean towards the underspending. But if you look at the general population, you’re right, it’s probably more evenly split between people who have trouble with spending too much. But the groups that we work with, you’re right, because they’re already ahead of time thinking through those things, giving themselves permission is more likely the problem they’re going to deal with along the way.

 

[06:41] – Decision #1: Experiences & Travel

Austin Wilson:

So let’s start with decision number one reason people have trouble spending money in retirement is things like experiences, spending on experiences. So things to think about, traveling, think about hobbies, think about vacations, these bucket list adventures. Maybe you want to go to Egypt, see the pyramids, right? These are things that retirees can struggle to spend money on because even though their financial plan probably looks pretty good. If we knew they wanted to do this, we would’ve built some funds for this into their plan, turning the switch to say, “I’m going to spend thousands of dollars on this.” I’m going to use air quotes on a podcast. So if you’re driving, I’m using air quotes. But if you’re watching the video, air quotes, this unnecessary expense, well, it seems hard to do, right? So talk a little bit about why retirees delay those things they’ve wanted to do for a long time.

Josh Robb:

And again, it comes back to the mindset of being frugal or being mindful during your working years. You would maybe say, okay, we want to do this big trip. I’m going to save the money until I have it and then do the trip. Well, now there’s no more income. So the only way to do this trip is to take additional money out.

Austin Wilson:

That you’ve already saved.

Josh Robb:

And it’s that transition of mindset to say it’s okay to do that. It fits. It’s not going to hurt my long-term plan, but I can take some money out along the way.

Jessica Hinks:

And as a preventative measure, it’s important to think about how you want to be spending your time in retirement. It’s a lot less scary if you planned ahead. So you have to sit down, even in your most busiest working years, you have to sit down and think about what kind of things you want to do after retirement because your financial advisor can set up a plan. We’re going to send you $10,000 a year on this day every single year as your travel fund. And that kind of forces you to go spend it.

Austin Wilson:

Yep. So Jess, talk a little bit about the danger of just saving for that trip someday, the hypothetical someday. What are some pitfalls of that?

Jessica Hinks:

Because some day’s always tomorrow. Some day’s never today.

Austin Wilson:

And it may never exist. It may never come. We know life’s short.

Josh Robb:

The future isn’t guaranteed. And how you are in the future, you may not be able to travel. There may be life circumstances that hold you up. So pushing everything out to a more secure future means that there may be a chance you don’t do it at all.

Austin Wilson:

And that’s a real thing in retirement planning is when spending occurs. So initially, and especially if people have given themselves permission to do some of these things we’re talking about today, you do spend quite a bit more in those firsthand because you’re really healthy. Your life is you’re able to move, you’re able to get around, you’re able to travel, and you have the ability to enjoy doing these things. But as you get older, this is why doing it earlier is… Just go ahead and do take the trip or whatever because you do get slower and you get harder to get around and getting through an airport’s a pain and much less going around the world. So that’s why we don’t need to always wait for someday. If our numbers support it’s okay to do it because our healthiest retirement years are usually those most valuable ones.

 

[09:35] – Decision #2: Lifestyle Upgrades in Retirement

Austin Wilson:

Decision number two that people often have trouble with getting their mind around is upgrading their lifestyle. So think about people who’ve, again, they’ve worked for 30 or 40 years or whatever, and they’ve been trying to postpone these house projects. They’ve been driving that really old car, they take cheap vacations or they don’t want to relocate and now things can look a little bit different. So what are some challenges that people have with this sort of way of thinking?

Josh Robb:

The difference between this one in a lot of ways and the other one is some of these are permanent expenses that continue on for a while.

Austin Wilson:

Yeah, not just one time expenses.

Josh Robb:

Whereas an experience, a trip is I pay for it happens, and then I’m done. Some of these, if you do a renovation on your home, there’s costs upfront, but it does increase other costs. Maybe utility bills go up, property tax goes up, insurance goes up. So now my ongoing expenses are higher because of this project that I did, downsizing or relocating. Downsizing always sounds great, but we’ve experienced a lot of times when you downsize, you want a newer property as well. So you don’t always necessarily end up with less costs.

Austin Wilson:

Cost downsize, yeah.

Josh Robb:

You may have less space to take care of, but costs don’t always change.

Austin Wilson:

Or actually what I’m hearing of with a lot of people who are in the retirement phase right now is they built or accumulated or bought whatever their house 10, 20 years ago. And if they were to go downsize, they really aren’t going to come out that much ahead of where, like you said, it’s the same thing. They’re not going to come out ahead on cost. It’s a different world.

Jessica Hinks:

And this is where we really need to understand the difference between spending and wasting. And I feel like a broken record because I talk about this topic a lot, but in my opinion, spending is only wasteful if the spending is on something that’s not aligned with your values. So I’ve done this exercise for myself where I laid out my top five values and I laid out my top five areas I’m spending money. I’m not talking bills, food, mortgage.

Josh Robb:

Extra spending.

Jessica Hinks:

Extra spending. And I’ll be honest, four out of the five actually aligned really well. I’m like, that’s awesome. Maybe one of them wasn’t. And that’s an area where I think there actually could be waste. So in my opinion, if you have done that exercise, it’s aligned with your values, you can afford it, it’s not a waste.

Josh Robb:

Oh, for sure.

Austin Wilson:

I think the mental challenge is usually just that, well, why would I renovate my house? What if I need that money later?

Josh Robb:

And there’s a trade-off to every decision. This is what I talk to clients about all the time, is you have to weigh the trade-off. So for instance, I could renovate the home so that it’s more easily for me to stay longer. The trade-off may be I may not be able to do as many vacations. Am I okay with that? You always just got to weigh the two and say, is this expense worth it? Does it fit more in line with my values and goals than the other thing I could be doing with this one?

Jessica Hinks:

You’re so right. It’s usually a trade-off.

Josh Robb:

Yeah. And that’s really where, and maybe the trade-off is that security of the future. I spend it now and I’m trading off. I’ll have a little bit less for the what if down the road. And so it’s always understanding what am I trading and is it worth it to me to match those values, the top goals or priorities that I have?

 

[13:49] – Decision #3: Helping Adult Children & Grandkids

Austin Wilson:

Yeah, absolutely. Decision number three that people have trouble with as they’re in retirement and spending money is the thought of helping adult children, maybe grandchildren, because it could be a great opportunity of all of the assets that you’ve accumulated over a long working career and the benefit that’s been to you over a long term to have a great nest egg, you could sometimes on paper or could build into your plan to have the ability to make some generous gifts to people in your life, whether that be your kids, whether it be the grandkids, it could be help your kids out with a first home purchase, give the down payment, help on that, maybe funding some education, supporting your grandchildren, just being available to help out if people run into a rough spot there. So talk a little bit about conversations you guys have with clients as it relates to that and how they can decide if that’s something that they want to do or really not, because it’s different for everyone, I’m sure.

Josh Robb:

I know, probably the same for you. What I hear a lot of times when this comes up is the saying, “Hey, they could use it more now than if I give it to them when I pass.” So they’re in those early stages of young kids, maybe their career is just taking off so they don’t have that free cash flow that you get later on and they say, “I would be more valuable to those kids or grandkids now than them to receive it when I pass away in my 90s and in their mid-60s. At that point, they don’t need it as much.” And that’s the hard… Because you can’t argue against that. It’s probably true. But the bigger question is, back to your values, is that the thing you want to most use this money for now?

Jessica Hinks:

And it just comes with conversations with your advisors. I always like to tell clients that they can use me as the bad guy. They can say, “Hey, my financial advisor said I can afford to give X amount a year to you all.” And it, one, allows you to be generous up to the amount where you’re able, but it also controls expectations and restraints are given.

Josh Robb:

Yeah. And that’s the key is, again, for this one in particular, this is, again, it could be a value of yours. You really want to pass on a legacy. So that’s great. But the biggest trade-off here is this is something that once it’s there and gone, again, it’s not something that you could create a habit for that they expected in future years. It could become an ongoing expense that you have a harder time stopping.

Jessica Hinks:

I have seen that. Once you start giving for more than a couple of years in a row, it is no longer a gift, it’s an expectation. Even with the most best kids, it happens.

Austin Wilson:

I think Josh, to your point earlier, they could use it more now thinking there’s a lot of truth to that too. A $10,000 gift to someone who’s 30 and starting a family is probably worth more to their cash flow than a $100,000 gift 30 years down the road when that loved one passes. Because it’s really hard to come up with that money when you’re living every single month just trying to put diapers on the kid. But by the time your loved one or your spouse or your parent or whatever passes, well, all of a sudden we probably have our own nest egg at that point. So that’s totally different thought there.

 

[16:59] – Decision #4: Investing in Your Health

Austin Wilson:

Decision number four that people have trouble with is investing in your health. It’s one of those things that as you age, investing in your health and retirement could be actually one of the highest returns on investment because this is going to be the thing that is going to ultimately preserve your independence and your quality of life, which ultimately should be the things your family wants for you as well.

But people hesitate to spend money on that. That could be things like spend a little extra money to have some better healthcare options, preventative care appointments, things like that, fitness programs, just maybe you have a gym membership, maybe all these things, or a personal trainer, that could be an option. And then home modifications that can improve safety. These are things that people have a hard time spending money on. So talk a little bit about just that mindset that it can actually be a really good thing. It might be okay to tell yourself it’s okay.

Josh Robb:

Yeah. And I think part of it, in my opinion, is of all these, this is the least fun of the outcomes because it usually comes with work. If I’m going to invest in my health, I’m probably going to have to make either decisions on what I eat or put into my body or how I take care of my body to make it all worthwhile. And doing all that’s not as much fun as going on a trip. So sometimes when you’re weighing them all, this may be your best decision for your long-term health and longevity, but it’s also the hardest one.

Austin Wilson:

Yeah, for sure.

Josh Robb:

And so they can easily talk themselves out of it by saying, “Well, I could just do this instead.”

Jessica Hinks:

I’m going to take it a step further. I think it’s going to be the hardest one, especially for women actually. I talk to a lot of moms. We tend to put everyone’s needs ahead of us. Everyone comes before us. So when it comes to spending money, I know moms that they shop at Goodwill, their kids get the name brand clothes. They buy a fridge full of fruit and berries, but that’s just for the kids’ lunches. They’re not allowed to touch it in their minds because you got to save it for them. And another point is I’ve always been told that you have to spend money on your health. And more importantly, you should spend money on things that connect you to the ground.

Josh Robb:

Yes, 100%.

Jessica Hinks:

Have you ever heard me say that?

Josh Robb:

Yes.

Jessica Hinks:

So this is a health thing. If it connects you to the ground, this would be chairs, shoes, beds, tires. That’s not really health, but it’s health and safety. If it connects you to the ground-

Josh Robb:

Spend the money on falling.

Jessica Hinks:

Spend the money, it’s not a waste.

Josh Robb:

Yep, absolutely. I love that.

Austin Wilson:

I love that. Anything that connects you to Michelin tires.

Jessica Hinks:

The former Cooper Tire guy over there is like, yeah.

Austin Wilson:

I know. So yeah, another aspect of this is healthcare costs. So this is something that just along with, yes, there are things we can do to enhance our quality of life, that’s good. But just talk a little bit about healthcare costs and going forward, what inflation expectations are and longevity concerns, because those are obviously something that people need to get their mind around as they’re looking at retirement.

Jessica Hinks:

Yeah. Well, healthcare is inflating much quicker than average inflation. We use 6.3% per year of healthcare inflation expenses. That would be dramatic. And do I think that healthcare expenses will continue to inflate that much for the next decade or two decades or three? I sure hope not. I don’t see how it’d be sustainable. We see that in retirees, a lot of times our expenses aren’t changing a lot from the early years to the later years of retirement, except the early years you have the fun things like the travel and the gifting perhaps. In the later years, it’s not the travel, it’s the healthcare. So the percentage of costs in your overall budget for healthcare goes up dramatically in those later decades of retirement.

 

[20:27] – Decision #5: How Much Should You Leave Behind?

Austin Wilson:

Yeah. That makes a lot of sense. And decision number five that people have a lot of trouble with getting their minds around is determining how much to leave behind. So what kind of legacy do you want to leave behind? Our mission at Hixon Zuercher is to steward generational wealth. Well, part of that is working with our clients to say, “Hey, what are you going to do with this when you’re gone? Because you can do a lot with it. You have a lot of choices at your disposal here.” But this ultimately creates one of the most difficult and emotional trade-offs in retirement because most retirees, they admit they want to leave something for their family, but the important question that is only answerable by you is how much. And there are a lot of aspects of that. So Josh, talk a little bit about that.

Josh Robb:

Well, not only that, but they may have an idea. So then the question comes back to, well, can I spend this now and then still have what I want to give? And that’s where when we talk about the hard decisions, it’s actually not how much do I leave? It’s what am I giving up for myself in order to do that?

Austin Wilson:

Correct.

Josh Robb:

And that’s really the bigger one is we’ll have clients that say, “I really want to leave something behind for my kids and it’s X, Y, Z.” And then they intentionally choose to live below where they could in order to make sure they’re going to do that. And they’re sacrificing some enjoyment for themselves to meet this goal, which isn’t a bad thing, but the unknown is maybe I could have done all that because I’m going to live X amount of years. All the things that we can’t solve, they could in a sense have had a more enjoyable retirement and still met that goal. You just don’t know. So they’re always stuck. And if that’s a big legacy goal, they’re going to lean towards depriving themselves of those experiences or spending to meet the goal.

Jessica Hinks:

Sometimes I think that legacy goals are actually just fear of the unknowns in disguise. I’m fearful I’m not going to have enough, so I’m just going to try and leave an extra legacy buffer really just to make sure you’re taken care of. Another fun thing I thought as well, I recently had a client have a conversation with me about legacy and she was like, “Well, either I’m going to spend it or my kids are.” And she didn’t make a choice. Who did she want to spend it? She chose herself. And in some situations I’m like, “You’re right. You don’t know what they’re going to spend it on.” And so you have to make those choices for yourself.

Austin Wilson:

I think there’s a lot of emphasis placed on what we’re leaving behind, when in a lot of instances, generational wealth is a real thing and passing generational wealth along to the next generation is a real thing, but it hasn’t always been a huge component of people’s financial lives. Look back historically, there wasn’t always a lot to go on to the next generation and people had to come up with what they were doing on their own. And your adult children should be able to come up with… They shouldn’t depend on this, so the pressure is on you to make your decision on what it should be, not doing it with what they needed in mind.

Josh Robb:

And I’ve spent a lot more time reading through and thinking about this and the idea of leaving behind values and work ethic and principles is far more valuable than just assets.

Austin Wilson:

Totally.

Josh Robb:

And that’s really what you should spend more of your time doing is teaching them and training them versus just leaving them a big pile of money or whatever.

Jessica Hinks:

My kids will forever know to spend money on things that connect them to the ground.

Austin Wilson:

Connect to the ground. No, they’re going to have the best shoes in the world.

Jessica Hinks:

Except I’m a mom, so I buy myself the worst shoes.

Josh Robb:

You need to follow your rules.

 

[23:50] – Giving Yourself Permission to Spend

Austin Wilson:

I know, that’s right. So I guess when you look at, in summary, all of these five things we talked about here, the real challenge is permission. You have to give yourself permission because a lot of the answers for these isn’t about numbers. In most of these instances, your advisor would’ve said, “Go for it. We talked about this, we built this. You have to give yourself permission to spend the money that you accumulated by living below your means for a long time.”

So that is where it’s all there. It’s really about fear of running out of money, fear of making a mistake, fear of losing control, maybe regretting not doing something. And these are just things you need to have conversations with people, conversations with your advisor, conversations with your spouse, conversations with your kids. Those are the ways that you are going to ultimately have clarity on what you need to be doing with your assets going forward. So there’s a lot of questions that we need to be asking ourselves as we’re having these, and those could be, well, just ultimately, what did I save all this money for? If it was all the things we just talked about, you should probably do the things you saved the money for. Am I sacrificing today’s opportunities for fears about tomorrow? Because fear is not… Prudence is one thing, but fear is not where we should be.

We can be prudent and not fearful because we can plan for things. And then ultimately, like Jess talked about, looking at your values. What aligns with my values? What experiences might matter the most to me? What investments might matter the most to me? Let’s align our spending there even in retirement. And then if I knew I wouldn’t run out of money, what would I do differently? And you could really make a good plan based on that, right?

Jessica Hinks:

I love that question. And I kind of want to repeat it again slower.

Austin Wilson:

Go for it.

Jessica Hinks:

The question is, if I knew I wouldn’t run out of money, what would I do differently?

Austin Wilson:

I like it.

Jessica Hinks:

And maybe that was just a good question for me to think about, but I hope that the audience can think about it too.

Austin Wilson:

That’s right. So in total, there’s a lot of questions retirement can make you have about your money, right? But it’s okay to stick to the plan. It’s okay to have a life, but it’s also okay to be prudent. So I just think it’s a balance. And Josh would say it depends on should you do any of these things.

Josh Robb:

Yes.

Austin Wilson:

But yeah, that’s kind of where we are on that. Thanks Jess for joining Josh and I today on our conversation. And if you found value in that, don’t forget to subscribe to The Wealth Mindset Show and whatever podcast player you’re listening to us on, so you don’t miss an episode. Also visit thewealthmindsetshow.com for more episodes and more resources and hzcapital.com to learn more about what we do here at Hixon Zuercher Capital Management. Otherwise, thanks for listening and we’ll catch up next episode.

Josh Robb:

All right, talk to you later.

Austin Wilson:

Thanks. Bye.