You can spend decades saving, investing and making careful financial decisions, only to discover that some of the biggest retirement mistakes happen after you have already built the wealth.
In our recent discussion with Ben Brinkerhoff, Head of Advice at Consilium, we explored why spending can be harder than saving, why the first 10 years of retirement matter so much, and how planning ahead can help retirees use their money with greater confidence.
Why Not Spending Can Be One of the Biggest Retirement Mistakes
The people who arrive at retirement in a strong financial position are often the same people who find spending the hardest.
They have spent 30 or 40 years being careful. Saving rather than splurging becomes more than a financial habit; it can become part of their identity.
Then retirement arrives and the behaviour that helped them accumulate wealth suddenly needs to change.
For someone who has always associated responsible financial decisions with saving, withdrawing a significant amount to travel, buy a car or pursue something they have always wanted can feel irresponsible, even when they can comfortably afford it.
According to one study discussed by Ben, 66% of people seeking financial advice psychologically identified as a “tightwad”. These are people who can struggle to spend even when they need something and have the money available.
That can create one of the more difficult retirement mistakes to fix: reaching the point where you have the money and freedom to enjoy it, but being unable to give yourself permission to do so.
The Retirement Mistakes That Become Harder to Fix With Time
Ben breaks retirement into three broad phases: the “go-go years”, the “slow-go years” and the “no-go years”.
The first 10 years, roughly from age 65 to 75, are the go-go years. This is when retirees may still have the health, energy and interest to travel, pursue hobbies and tick off experiences they have spent years thinking about.
From 75 to 85 come the slow-go years, followed by the no-go years from 85 onwards.
The challenge is that people can enter retirement worrying about what they might need at 80, 85 or 90. That concern can stop them spending at the exact point when they are physically most capable of enjoying the money.
Ben shared the example of his parents, who had never travelled to Europe. In their late 70s, their friends finally convinced them to plan a trip, including visiting Scotland, where his mother’s family had come from.
But in the months leading up to the trip, health issues made the logistics of travelling increasingly difficult. Getting in and out of planes, trains and taxis, carrying bags and being away from their doctors became overwhelming.
They cancelled the trip, and they are unlikely to ever make it.
The money was available. The opportunity was not.
As Ben put it, one of the biggest retirement mistakes is not spending the money when you still have the health to enjoy it.
Why Spending Typically Falls as We Age
For years, it has been understood that people in their 60s generally spend more than people in their 70s, while those in their 70s spend more than people in their 80s.
The difficulty was knowing whether the same individual actually reduced their spending as they aged.
Ben referenced research from J.P. Morgan that tracked how the same clients spent over decades. The data showed that spending falls in real terms by approximately 1.6% per year between the ages of 60 and 80.
In practice, that does not necessarily mean someone spends fewer dollars every year. Instead, their spending may simply fail to rise alongside inflation.
That has important implications for retirement planning.
A traditional approach might assume someone needs to increase their withdrawals by inflation every year throughout retirement. But if actual spending patterns show people naturally spend less in real terms as they age, there may be an opportunity to structure retirement differently.
That could mean having more available during the go-go years when health allows you to use it, while planning for lower spending during the slow-go years.
Creating a ‘Permission to Spend’ Bucket
One way to make spending psychologically easier is to stop treating every retirement dollar as if it has the same job.
Ben used an example of someone who has calculated they need $1 million to fund their long-term retirement but has accumulated $1.75 million.
If the entire $1.75 million sits in one investment account, withdrawing a significant amount can feel like taking money directly away from future financial security.
Instead, the money could be separated.
One account contains the amount required to fund the person’s long-term retirement needs. The remaining $750,000 becomes a separate pool of money they have permission to spend.
The underlying financial position has not changed, but the psychology has.
Rather than thinking, “I’m taking money away from my future”, the retiree can see that their future needs have already been accounted for and the separate pool has a different purpose.
It is similar to receiving a bonus at work. Although salary and a bonus are both simply money, people often treat them very differently. A salary may be mentally allocated to everyday expenses, while a bonus feels more available to enjoy.
The same principle can be applied in retirement.
Spend on the Things Your Health Allows You to Do
Retirement spending does not have to mean buying expensive things for the sake of it.
The question is what the money allows you to do while you are physically capable of doing it.
That could mean travelling, going on an African safari, building the wine cellar you have always wanted or spending time and money on a long-held hobby.
It can also mean spending money directly on your health.
Ben discussed options such as testing, gym memberships and personal trainers as examples of spending that could support health during retirement.
Health is what enables many of the experiences people imagine when they think about retirement. As that changes, the opportunities available to them can change too.
What If You Would Rather Leave the Money to Your Family?
For some retirees, spending on themselves is not what brings them the most satisfaction.
That does not necessarily mean the money needs to remain untouched.
Ben shared the example of his parents-in-law, who were financially secure but reluctant to spend significantly on themselves. One thing they valued enormously was their grandchildren.
Their financial adviser encouraged them to think about ways they could use their money to create memories with their family. Eventually, they took the entire family to Turkey and Greece.
For their grandchildren, it became a trip they are likely to remember for the rest of their lives.
This can also help children who see their parents holding onto money they could comfortably spend.
Rather than simply telling a parent to “spend more”, families can have a conversation about what matters more than the money itself. That could mean travelling together, creating experiences with grandchildren or using money in a way that creates the legacy they actually want.
Have a Plan for When Markets Fall
Spending confidently when markets are rising is one thing. Continuing to do so when an investment portfolio falls in value can feel very different.
Someone seeing a $1 million portfolio fall to $850,000 is not simply looking at a 15% decline. They may see $150,000 disappear on paper – potentially representing years of savings.
Ben calls the response to this a “counterpunch”.
The idea is to decide what you will do during a market downturn before it happens.
One option could be temporarily reducing spending. If someone needs $80,000 a year but their financial plan shows they can comfortably spend $110,000, they could agree in advance to reduce spending back to $80,000 if markets fall significantly.
Another option could involve adjusting the portfolio. Ben gave the example of moving from a 50/50 mix of shares and cash and bonds to 60/40 after markets have fallen, positioning the portfolio to participate more strongly if markets recover.
Retirees may also have other assets available. Someone living in a four-bedroom family home in their late 70s, for example, may decide that maintaining the property no longer suits them and consider downsizing.
The important point is that these decisions are planned rather than reactive.
Why a Mix of Assets Matters in Retirement
A diversified portfolio can also provide options when markets fall.
Someone withdrawing money in retirement may hold a combination of shares, bonds and cash. If share prices fall, the plan does not necessarily require selling those shares at lower prices to fund everyday spending.
Instead, withdrawals may be able to come from another part of the portfolio.
The reason for holding a mix of assets is that nobody knows in advance what markets will do. If you knew shares were about to rise, you would hold shares. If you knew they were about to fall, you would hold cash.
A mix helps manage that uncertainty and gives retirees different places from which to fund withdrawals.
The distinction between a sensible adjustment and an emotional reaction ultimately comes down to the plan.
If the numbers show that the original withdrawal rate remains sustainable, changing everything because markets have fallen may be an emotional decision. If the numbers show an adjustment is required, executing a strategy that was considered beforehand is very different.
What If Retirement Is Still 15 Years Away?
The discussion is just as relevant for people who have not yet retired.
Ben has seen people move from having very little accumulated for retirement to reaching a comfortable position within around 15 years.
Several factors can come together during someone’s late 40s, 50s and early 60s.
People may reach their peak earning years at the same time their children become financially independent. The cost of supporting children falls while income is potentially at its highest.
Around the same period, the mortgage may finally be repaid.
Together, those changes can dramatically increase the amount available to save. Instead of saving 5% or 10% of income, some people may be able to increase that to 15%, 20% or even 25%.
An inheritance may also arrive during this period. While nobody should necessarily count on receiving one, Ben regularly sees inheritances arrive between the ages of 50 and 70.
Downsizing can be another factor. A large family home that made sense with children at home may become more property than someone wants to maintain later in life. Moving to a smaller home could release additional capital.
The key is knowing what you are working towards. Once you understand what you need for retirement, additional savings, an inheritance or money released through downsizing can be considered within that bigger picture.
If You’re Still Accumulating, Market Falls Look Different
For someone still building wealth, falling markets present a very different situation from someone already withdrawing money.
Ben compared it to walking into Briscoes and discovering the item you wanted was 40% off.
If you are regularly buying investments through something such as KiwiSaver, lower prices mean the same contribution buys more.
If $1,000 is invested every month, it buys fewer units when prices are high and more when prices are low. If markets subsequently recover, the additional investments purchased at lower prices participate in that recovery.
The challenge is psychological.
People can describe themselves as aggressive or growth investors while markets are rising, only to panic when prices fall. Ben’s point was that anyone still accumulating assets needs to understand that lower prices are not necessarily their enemy.
No one knows how to perfectly time markets, which is why regular investing continues regardless of what prices are doing.
Key Takeaways
- Some of the biggest retirement mistakes can happen after you have already done the hard work of building wealth.
- Decades of careful saving can make it psychologically difficult to start spending in retirement.
- The first 10 years of retirement can be particularly important because health may allow you to travel, pursue hobbies and enjoy experiences that become harder later.
- Ben describes retirement as the “go-go”, “slow-go” and “no-go” years, with spending opportunities changing as health and lifestyle change.
- Research discussed in the episode suggests spending falls in real terms by around 1.6% per year between ages 60 and 80.
- Separating long-term retirement money from a dedicated “permission to spend” pool can make it easier to enjoy surplus wealth.
- Spending can also mean investing in your health or creating meaningful experiences with children and grandchildren.
- Market downturns should be considered before they happen, with a clear “counterpunch” plan for how spending or the portfolio could adjust.
- For people still building wealth, peak earning years, lower family costs, paying off the mortgage, inheritances and downsizing can significantly change their retirement position.
- Investors who are still accumulating should remember that falling markets also mean their regular contributions are buying investments at lower prices.
- Ultimately, money is a tool for both financial security and making decisions that allow you to live well.
Next Steps
Speak with the Lighthouse Wealth team to build a retirement plan that helps you understand what you can afford to spend, how your money can be invested and how to prepare for changing markets.
Read Ben’s article to learn how a ‘Happiness Fund’ can separate surplus retirement savings and give you permission to spend on what matters most.
If you’d like to watch more, check out this episode below.
For a no obligation discussion to see how we can help you on the path to wealth, please contact us.
Disclaimer:
The information in this article is general information only, is provided free of charge and does not constitute professional advice. We try to keep the information up to date. However, to the fullest extent permitted by law, we disclaim all warranties, express or implied, in relation to this article – including (without limitation) warranties as to accuracy, completeness and fitness for any particular purpose. Please seek independent advice before acting on any information in this article.
