You’ve been working and saving for decades for just this moment: retirement.

Even though you may be ready to stop working full-time, now comes the hard part: actually letting yourself use your savings. Since you no longer will be bringing in that paycheck, spending in retirement can be difficult because until now, that paycheck has covered your monthly expenses.

Making the psychological shift from saver to spender is no small feat for most people.

“Now you have this lump sum and have to draw it down. For some it’s almost physically painful,” said David John, a senior strategic policy advisor at the AARP Public Policy Institute.

But unpredictable factors like market performance, life expectancy and health issues make spending your money easier said than done, John said. That’s why people may be hesitant to tap their savings because they think, “I have X dollars and it has to last me my whole life, but I have a very uncertain future. So if I touch that I’m putting myself in jeopardy.”

And research shows that among retirees with savings, many do not draw down very much, choosing instead to live off fixed sources of funds, such as Social Security or pensions or income from part-time work they take up. A study by Black Rock found that the vast majority of retirees still have at least 80% of their savings after two decades in retirement.

No doubt that’s partly because they enjoyed one of the longest bull markets in history from 2009 to 2020, which helped replenish some of what they drew down over the years. And they’re among the last generation of workers to benefit from corporate pensions.

The psychological reluctance to tap one’s savings is a factor for most people regardless of their financial situation.

Fear of the unknown.

Xenophobia. It’s a term used in psychology which describes the fear of the unknown. Is it in our nature as humans to fear the unknown. In other words we fear what we don’t know or what we do not understand. A recent article written by the Harvard Business Review goes into detail on how to overcome the fear of the unknown by laying out 4 important principles: Reframe your situation, Prime yourself for new opportunities, Do something, and Learn and Educate yourself.

Let’s take those principles and apply them to the topic of this article (retirement):
1. Reframe Your situation - Understand where you are at, and what steps need to be taken to get where you want to be.

2. Prime Yourself for new opportunities - Know your options, know what else is out there for you.

3. Do something (take action) - Simple, take action

4. Learn and Educate Yourself - Education is key to understanding what you don’t know.

A study done by the Employee Benefit Research Institute (EBRI) titled Spending in Retirement evaluated the spending habits of 2,000 Retirees. It was shown that of the sample group, 4 in 10 retirees planned to spend down a majority of their assets.

(*One factor to point out in the study is that of those retirees studies, their assets levels/expenses varied to best represent the retirement community*)

The study went on further to find out the reasons people choose not to spend in retirement. Top top given response was “saving assets for an unforeseen future” or in other words, fear of the unknown.

Changing your mindset is crucial.

Take the fear out of spending your money in retirement. This is one of Fiat Wealth Management’s foundational planning philosophies.

A structurally sound retirement plan starts at the foundation, which represents you (your needs, wants and goals for retirement). Creating this foundation ensures that the different aspects of your financial plan are embedded in the principles you have set forth. An intentional plan designed around you is important to a successful and worry free retirement.

The old saying goes, “You have worked hard for your money, now let your money work hard for you.”

Breaking this quote down obviously points to two different phases of life, accumulation and retirement. In the Accumulation phase, you are saving your money. Typically accumulators are invested in growth oriented securities because their investment horizon is longer. Retirees amassed their pile of money; and just as changing your mind-set is critical, intentionally putting your assets to work for your designed purpose is important. It ensures that your assets are working for you (needs, wants and goals).

Conclusion

Taking control of your financial future is very important if you want to be more confident in your financial future. Depending on your need’s wants and goals in retirement, you may want to spend all your money in retirement, or you may want to leave a legacy after you pass. Whatever your plan is, a critical question to ask yourself is if you are confident and fear-free for your retirement future.

Source: CNN Business, Harvard Business Review, Employee Benefit Research Institute

This page is a publication of Fiat Wealth Management, LLC. The firm is registered as an investment adviser and only conducts business in states where it is properly registered/notice filed or is excluded from registration requirements. Registration is not an endorsement of the firm by securities regulators and does not mean the adviser has achieved a specific level of skill or ability.

The information presented is believed to be current. It should not be viewed as personalized investment advice. All expressions of opinion reflect the judgment of the authors on the date of publication and may change in response to market conditions. You should consult with a professional advisor before implementing any strategies discussed. Content should not be viewed as an offer to buy or sell any of the securities mentioned or as legal or tax advice. You should always consult an attorney or tax professional regarding your specific legal or tax situation.

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