Hi friends, it’s Devin, founder and CEO of Choules Financial. On this week’s Key to Yes, we’re going to go over the five things that you need to do in managing your spending inside of retirement.
The first thing we have to talk about is that your entire life, you’ve been focused on saving. We’ve been putting money into our 401(k), our IRA, our bank accounts—whatever it may be. That’s the accumulation phase. But now we have to shift our mindset to spending. I often compare this to climbing a mountain, like Mount Everest. The rules that get us to the top aren’t the same rules that get us back down.
It’s interesting that no one ever talks about practicing the climb down a mountain. Everyone practices climbing up. But on Mount Everest, statistically, more people die on the way down than on the way up. I believe that’s because they didn’t have a proper plan for that transition. Here’s another example: it’s probably been a while since you’ve climbed a tree—it has for me—but what I remember clearly is that it’s way easier to climb up a tree than to climb down. And the crazy part is, all the limbs are still in the same place. You already touched them on the way up. But going down is significantly harder. It requires changing the way we move, the way we think, and the way we approach the situation. It’s the same with moving from saving to spending in retirement.
This change has serious implications, especially when it comes to taxes. When we’re climbing the mountain, we have kids, we have deductions, we’re paying mortgage interest, we’re contributing to retirement accounts—all of which reduce our tax burden. But when we start coming down the mountain, we begin taking money out of those retirement accounts. Those deductions start to disappear. Hopefully, we’ve paid off our house. Our kids are grown and no longer count as dependents. Everything changes, and we have to build a plan around this shift.
Then there’s the idea of essentials versus extras. I like to think of it as surviving versus thriving. Nobody wants to live on the bare minimum in retirement. Nobody wants to say, “Hey, I can pay my bills, and that’s it.” Given the choice, we’d rather enjoy life—take the bucket list trip we’ve dreamed about, eat at our favorite restaurants, and most importantly, do the things we love with the people we love. That, to me, is a successful retirement.
To make that possible, we need a baseline budget that helps us cover the essentials—what gets us from point A to point B. But we also need to plan further so we can thrive. Sometimes, that means accepting that discretionary spending may shrink after we retire, and we have to be okay with that. A great exercise is to compare your current budget with a projected retirement budget, so you can make the appropriate shifts and avoid becoming someone who runs out of money before they run out of life.
Another piece of this is a mindset shift. Our whole lives, we chase a return on our money. But in retirement, the focus becomes the return of our money. What matters more is having the money to pay bills, go on vacations, and live your life. After working with hundreds and thousands of people, I can confidently say that the return of your money—ensuring you have consistent monthly income—is the number one priority for retirees.
Now we come to the long-term budget. Once we stop working, we essentially have a finite amount of resources, unless we sell assets or receive an inheritance. We need to know what our finances will look like long term. Can we retire now? Should we work longer? Can we afford to stop sooner? All of these questions come back to making that mindset shift and building a plan for the future.
We also have to plan for inflation. Just because we can afford something today doesn’t mean we can afford it tomorrow. I’ve talked about inflation for years, and unfortunately, it’s now a reality we’re all dealing with. If you lived through the inflation of the Jimmy Carter era, time may have dulled the memory of how bad it was. But now we’re experiencing a new version of it. We have to ask ourselves where we’re going to get extra money if Social Security doesn’t keep up. If we have a pension that doesn’t adjust for inflation, or if we’re relying on a fixed portfolio, we need to know how much more we can safely withdraw. Long-term planning has to account for inflation.
With all of this in mind, when it comes to spending in retirement, the most important message—and you’ve heard me say this before—is that a plan is greater than a hope. If we simply hope things work out, that’s all we’ve got. But if we make a plan, if we take the time to understand the shift from saving to spending, and we set expectations around surviving versus thriving, we’ll be in a much better place.
Our happiness in retirement is directly tied to the difference between what we have and what we want. If we want a happy retirement, we need to understand what we have, and then be thoughtful about what we can afford to want. That’s how we make it through.
That’s this week’s edition of Spending in Retirement on the Key to Yes. As always, hit the subscribe button, turn on your notifications, and we’ll be back next week. Thank you.
