When you can spend the money

By David Jackson, MBA, CFP^®, C(K)P^™, Managing Partner – Investments, Southern Springs Capital Group

Believe it or not, you can spend the money.

A few years ago, I was meeting with a married couple in their 40s. For a financial advisor, these were the ideal clients. They were always looking for ways to save and invest more money. They both came from families where the parents had been good savers. They had earmarked investments for college for their teenage children. They were contributing the maximum amount to their retirement plans at work. They were contributing the maximum amount allowable in their IRAs. They were investing money over and above those things.

When I was meeting with them, the wife asked me, “Should we saving and investing more?” My response was that everything in investing is not about the future. It is about saving for the future, so that you are able to enjoy the present. I then said something along the lines of “One day you’re going to look up and taking a family vacation will mean taking the grandkids to Disney World.” I could see the look of surprise on their faces. This was not what they were expecting to hear from me.

I asked them if there was anything that they felt like they were currently sacrificing. They assured me that they were not sacrificing anything. One week later, they purchased a sports car. Maybe they would have purchased it even if we had not had that conversation. But I could tell that they had a sense of relief when I told them it was ok to enjoy some things today, and that everything didn’t have to be about the future.

Obviously, they are the exception in our business. Most people that I meet in their 40s are not saving and investing enough. More often than not, I’m advising people to save and invest more. But there is something to be said for enjoying life when your financial future is secure.

Along similar lines, I also come across more and more people each year who seem afraid to spend money during their retirement. I find myself having to remind them that it’s actually ok to spend the money that they’ve saved for retirement on their retirement.

In the last several years, more people have moved from employer-sponsored retirement plans where they are paid a monthly pension, to plans where they build their own nest egg to support their lifestyle in retirement. While this has been very good for the people who take advantage of those plans, one consequence I have observed is that many people have trouble translating a lump sum amount of money into how much that means that they can spend to live well, but not run out of money. Many times, they are not spending as much as they could be.

One of the best things a financial advisor can do for you is to help you determine how much spending is reasonable, given how much you’ve accumulated. I still see a lot of advisors make the assumption that people will spend the same amount each year in retirement, plus an inflation factor. My experience in actually working with many retirees is that it rarely works like that. The window of time that people have to really enjoy their nest eggs is usually shorter than they realize. I don’t see a lot of 95-year-olds booking cruises (even before the pandemic).

There will come a day when you don’t feel like traveling or being as active or spending as much money. That day has a way of sneaking up on you.

Securities offered through Raymond James Financial Services, Inc., member FINRA / SIPC. Investment advisory services offered through Raymond James Financial Services Advisors, Inc. Southern Springs Capital Group is not a registered broker/dealer, and is independent of Raymond James Financial Services.