Are You an Underspender?

Justin Rodriguez, CFP®

Feb 19, 2024

This isn’t an article about biking, but it starts with a biking story.  I’m friendly with a married couple in their sixties for whom biking is a passion and a joy. In retirement, they’re spending more time riding, and riding more miles than ever.  Their older bikes were always fully functional, but they were also heavy. Heavier bikes made riding the many hills in their area more difficult and less fun. My friends realized this and could have easily afforded newer bikes with lighter carbon frames and components. But they also felt they had worked hard and long to achieve financial security in retirement and buying expensive new bikes seemed an unnecessary extravagance to them, despite the fact that biking was such an important and enjoyable part of their lives.

Then, the husband’s old bike frame developed a crack that couldn’t be repaired, and it became unsafe to ride.  He had to get a new bike and decided to take the leap—he bought a lean, light carbon-frame bike that rode like the wind. His wife was determined to continue riding her old bike, but you might guess what happened next. She rode her husband’s brand-new bike one day and fell in love. Despite agonizing over the expenditure, she finally decided to upgrade to the same bike her husband was riding.

Bike purchases seem like a relatively minor decision in the overall context of retirement, but this decision has had an outsized effect on this couple’s quality of life.  They are more devoted than ever to biking, an activity that challenges them and keeps them fit and socially engaged with their bike-riding friends. They are having much more fun riding, doing longer rides than they were able to do before, and recovering from rides faster. All because they finally made a high-impact expenditure that they had been able to afford all along.

You Have More Than Enough – But Can’t Allow Yourself To Spend It

The key to this couple’s story is that they had the mindset and discipline over many years to build more than enough wealth to provide them with a financially secure retirement, but when it came to making an expenditure that they could easily afford—one that would truly enhance their quality of life—they had a lot of difficulty pulling the trigger.  It made them look more carefully at whether their engrained habit of prioritizing the maximization of their wealth over the enjoyment of their lifestyle was really the best decision for them.

It is a common conception that getting a rein on overspending is a large part of the work in financial planning. But very often we work with clients who have more than enough to meet their retirement goals, only to arrive at that transition point finding themselves psychologically or emotionally challenged to spend on the extras that are not basic needs, but would enhance their happiness and quality of life. For these underspenders, as with the biking couple described above, going from saving to spending mode is a very steep and sometimes unexpected hill to climb.

Underspending can manifest itself in retirement for a variety of reasons. For some retired clients, drawing down portfolio assets after decades of building their wealth is an anxiety-provoking experience. In addition, we all grew up with different messages around spending, what a “good” life means, our definition of financial security, and what that means in our lives.  For some clients, spending on things, people or experiences beyond their basic needs may cause significant distress because it doesn’t jive with how they self-identify as good savers or frugal people.  Spending on perceived extras may also exacerbate worries about an unpredictable retirement future in which we may experience health crises, need long-term care, or be subject to severe market downturns.

You may recognize yourself in this group of retiree underspenders–those who have always followed a path of diligent saving and sustainable spending, have arrived in retirement with more than enough assets to meet their goals, and yet are hesitant to spend money on non-essentials that could enhance the meaning, purpose and quality of their lives.

Strategies for Underspenders

First, it’s critical to involve your advisor in a conversation about your hesitancy to spend on extras.  Knowing this can help him or her frame your retirement spending plan in ways that might alleviate concerns that you are not on a sustainable path. For example, it’s important to understand the results of your Monte Carlo analysis as the probability of needing to make adjustments in spending, rather than as the probability of absolute success or failure of your portfolio.

It might also be helpful for you and your advisor to think about broadening the definition of your “essential” expenses to include some spending that may be discretionary on its face, but without which you would find it more difficult to thrive in daily retired life.  Examples might be gym, golf or other memberships, travel to see family, house maintenance services, etc.  If your advisor can show you that these more broadly-defined essential expenses can be easily and sustainably covered even during market downturns, you will likely feel better about truly discretionary spending such as recreational travel, gifting, house remodel projects, art, etc.

If you recognize that you’re an underspender and are preparing for retirement, you might consider ways you could “practice” being retired and supporting yourself on portfolio withdrawals rather than work income.  You could give yourself an extended on-ramp to retirement by working part-time before you fully retire, or take a lengthy sabbatical from work prior to making the final leap.

You can also learn more about the types of spending that research shows enhance happiness and boost quality of life. One example of this is buying time, such as paying someone to take care of your yard or clean your house, thereby giving you time for more enjoyable pursuits. Another example is spending money on experiences like travel or concerts, or buying material things that generate their own memorable experiences, such as a camper or a vacation home.

In addition, lifetime giving to charity, family, or friends can boost happiness. Michael Bloomberg—billionaire, noted philanthropist, and ex-mayor of New York City, has said, “I am a big believer in giving it all away and have always said that the best financial planning ends with bouncing the check to the undertaker.” Giving it all away during our lifetimes would be extreme behavior for most of us, but Bloomberg’s point is that being able to enjoy the act of giving makes doing it while we’re alive a very worthy endeavor.

I worked with a retired client couple who, every year without fail, gathered all their children and grandchildren living across the country and embarked on an expense-paid trip to some wonderful location.  One year it was a dude ranch, another it was the Galapagos Islands. The point was to share amazing life experiences together in a new setting, which brought them all closer to each other and helped them maintain their strong bonds even as life during the rest of the year scattered them apart.  It was also a way for this client couple to enjoy their “living legacy,” using their money as a means to enhance their family relationships and generate memories none of them will ever forget.

Don’t Leave Unspent Joy On The Table

For those who identify as underspenders, one final tool that might be helpful is a re-evaluation of your own personal mission statement. What is your money’s highest and best use? Financial planner George Kinder, sometimes called “The Father of Life Planning,” popularized questions designed to help clients dig deep to examine their hopes, dreams, and  goals.  Among them:  What would you do if money were no object? How would you live your life, and what would change?

Try asking yourself these questions, as your answers could be the key to an even happier, more meaningful and purposeful life in your next chapter. And if you fear you are leaving some unspent joy on the table in your retirement, remember the simple truth that a well-thought-out retirement plan can help you move from a mindset of scarcity to one of abundance.

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