Picture this: You’ve spent decades preparing for retirement by saving, investing, and planning every step of the way. Now you’re finally here, with everything you need. But instead of enjoying it, you hesitate to spend. What’s holding you back?
The Save-or-Spend Dilemma: From Scarcity to Abundance
Retirees are faced with a dilemma when they retire: How much do you want to spend, vs keep in your savings each year?
After years of saving, shifting to spending in retirement can feel uncomfortable—it’s a complete mindset shift. Many retirees struggle to move from a scarcity mindset to an abundance mindset, where they feel confident using what they’ve saved.
This save-or-spend dilemma is very common, and we see it with almost every client we work with. Let’s explore each and I’ll show you how to find the right save vs spend balance for your retirement needs.
Why Not Spending Enough in Retirement is a Bad Thing
Here’s some of the reasons:
- Missed Experiences and Opportunities: Retirees who hesitate to spend may miss out on meaningful experiences like travel, hobbies, or even healthcare improvements that could enhance their golden years. These are the moments that make retirement fulfilling.
- Healthspan vs. Lifespan:
- In his book Outlive, Dr. Peter Attia highlights a critical distinction between lifespan and healthspan. Lifespan refers to the total number of years you live, but healthspan is the number of years you live in good health—active, independent, and free from chronic disease or disability.
- Delaying spending can mean missing the best years of your healthspan, as retirees might wait until their physical abilities decline, limiting their enjoyment of what they saved for.
- Inflation’s Impact: Inflation doesn’t wait, and it can erode the value of your money over time. However, this is only a major concern if your retirement plan isn’t structured properly, as a well-planned retirement should account for inflation to see that your purchasing power remains intact.
Why Not Spending Enough in Retirement is a Good Thing
Now of course, not spending all your money isn’t all bad. In fact, for many retirees, this hesitation to spend can work in your favour. Let me explain:
- Encourages Cautious Spending:
The hesitation to spend promotes thoughtful, deliberate spending. You’re not rushing into purchases or overspending on impulse. Instead, you’re making sure that each decision is well-considered. - Helps Your Money Last:
This careful approach ensures that your money stretches further, reducing the risk of running out of money prematurely. And, let’s be honest, that’s a concern for many retirees. This is called reducing “longevity risk” - Reduces Portfolio Risk: Market losses early in retirement can drain your portfolio faster than later losses would, even if markets recover. Spending cautiously helps protect against this risk. This is called reducing “sequence of returns risk”
- Aligns with Your Goals:
At Blueprint, we always start by looking at your personal goals. For many clients, leaving a substantial amount for their loved ones or charitable causes is a big priority. Being cautious with your spending allows you to achieve these legacy goals while still enjoying your retirement.
So yes, while not spending enough can be a bad thing, it can also serve as a protective measure and increase your financial security. The key to this then, like I mention a lot in this channel, is…..
Finding a Healthy Balance
One of the biggest problems we see is that retirees simply don’t know how much they can safely spend. It’s not an easy problem to figure out, there are a lot of variables and factors to consider. If you don’t know how much you can spend, it’s natural to err on the side of caution—nobody wants to risk running out of money.
And while that approach makes sense, it can also mean you’re not enjoying the wealth you’ve worked so hard to build. It is very possible that you can achieve all your financial goals AND spend more money!
This is where a well-structured financial plan becomes essential. By clearly outlining how much you can afford to spend and stress testing your investment portfolio, we help retirees move from a mindset of fear and caution to one of confidence and enjoyment.
With a detailed plan, you’ll know exactly how much you can safely spend each year without jeopardizing your financial future.
Here’s a real-life example of how we helped two of our clients overcome this save vs spend dilemma and how we struck a healthy balance.
Michael and Karen, 66 and 64, Can Now Spend More Freely
Client Profile:
- Combined Income: $180,000 per year (from pensions, CPP, OAS, and investment withdrawals)
- Expenses: $70,000 per year (covering basic living costs, travel, and discretionary spending)
- Savings: $4 million (60% in a diversified stock portfolio, 30% in bonds, and 10% in cash)
- Goal: To increase spending on luxury travel, home renovations, and charitable giving
Our Process: Michael and Karen were living comfortably but conservatively, unsure if they could afford to increase their spending without risking their financial future. Their $180,000 annual income significantly exceeded their $70,000 in yearly expenses, leaving them with a surplus of $110,000. Despite this, they were very hesitant to spend more.
We showed them that with their $4 million portfolio and a sustainable withdrawal rate of 3.5%, they could easily withdraw $140,000 annually, more than enough to support additional luxury travel, home renovations, and increased charitable giving. Their guaranteed income streams—Michael’s pension, CPP, and OAS—covered their basic expenses, meaning their investments were largely untouched.
Solution: Stress testing is key to providing peace of mind for our plans. We stress-tested their portfolio for poor market conditions, modelling a 30% decline in value. Even in this scenario, their portfolio was well still within a safe range for long-term sustainability. Also, we ran longevity projections assuming they lived to age 95, showing that their portfolio would last well beyond their lifetimes, even with higher spending.
Outcome: Armed with this information, Michael and Karen felt confident enough to start spending more freely. They booked the luxury vacations they’d been dreaming of, began their home renovation project, and increased their charitable contributions, knowing they could comfortably enjoy their retirement without jeopardizing their financial future.
Pro TIP: The funny thing that we’ve noticed is the larger the portfolio our clients have, the HARDER it is to convince them to spend more money. This is mostly due to them developing very strict savings habits to accumulate so much wealth. So if you’ve built a large portfolio, you can spend more easily by setting small, meaningful goals—like travel or hobbies. Gradually shifting your mindset can help you enjoy retirement more.
Ok, here’s another example of a very common type of client we see:
Robert and Susan, 70 and 68, Balancing Spending and Legacy Goals
Client Profile:
- Combined Income: $100,000 per year (CPP, OAS, and work pensions)
- Expenses: $75,000 per year (covering living expenses, healthcare, and travel)
- Savings: $1.2 million (50% in a balanced portfolio of stocks and bonds, 50% in cash and GICs)
- Goal: To leave a meaningful inheritance for their grandchildren while still enjoying their retirement
Our Process: Robert and Susan were careful with their spending, aiming to leave a significant inheritance for their grandchildren. Despite having a healthy income and $1.2 million in savings, they were cautious about increasing their spending. They were unsure if they could afford to enjoy more travel and leisure while still leaving enough for their family.
We reviewed their financial situation and goals, and calculated that their $1.2 million portfolio, with a 4% withdrawal rate, could provide $48,000 annually. Along with their $100,000 income, they had more than enough to cover their $75,000 in expenses while still maintaining flexibility to increase spending.
Solution: To balance their lifestyle and legacy goals, we recommended increasing their spending slightly to $85,000 per year. This allowed them to allocate more funds towards travel and experiences, while still keeping their goal of leaving an inheritance intact. We stress-tested their portfolio, factoring in potential market downturns, and determined that even in adverse conditions, they would have more than enough to fulfill all their goals.
Outcome: With this new spending plan, Robert and Susan felt confident they could enjoy a higher quality of life now, while still leaving a meaningful inheritance for their grandchildren. This approach helped them strike the right balance between enjoying their retirement and achieving their long-term goals.
I’ve seen so many clients like Robert and Susan, who have a hard time enjoying their money because they’re so focused on legacy. I had a similar situation with my own parents even—they still feel guilty spending on themselves even though they had plenty saved for retirement.
Don’t let fear hold you back from enjoying retirement. Visit our services to get a custom plan that fits your goals and will tell you exactly how much money you can spend in retirement!
