Bill Van Sant has seen it many times among those he has helped with retirement planning. As a managing director at Girard, a Univest Wealth Division, Van Sant has worked with several retirees who are sitting on piles of cash in retirement, but are scared to spend.
There’s the one client who continued to pour money into an old car even though he could afford a newer one that was more reliable. Or the multiple clients who planned to travel in retirement but kept putting it off out of fear they would outlive their savings, only to suffer an illness or medical condition that prevented them from realizing their dream.
Even Van Sant's father keeps delaying the purchase of a newer boat that has a bathroom, even though he has the resources to upgrade.
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Retirement spending scaring you?
The road is paved with tales of retirees who were too frugal in retirement. Even though they have the means to splurge and reap the rewards of years of working hard, saving and planning, they are reluctant to spend their hard-earned money.
This frugality comes as the number of 401(k) millionaires among baby boomers is growing. As of the end of 2024, Fidelity Investments found that 41% of all 401 (k) millionaires were baby boomers. Generation X — or those between the ages of 45 and 60 — accounted for 57% of all 401(k) millionaires.
“Going from the accumulating savings part to the spending part is a hard transition,” says Van Sant. “Many retirees don’t spend enough, and it all comes down to their mindset.”
Old spending habits are hard to break
Many of Van Sant’s clients are conservative by nature. They grew up watching their parents scrimp and save and adopted that approach to letting go of their money.
That’s not to say there aren’t clients who are spending money in retirement, but those tend to be the ones who were doing so during their working years or have come to terms with the fact that they have enough money to easily live for twenty-plus years without a paycheck.
“People who had the lifestyle creep as their income went up are the folks that tend to spend more now that they are in retirement,” says Van Sant.
Van Sant isn’t alone. A reluctance to spend in retirement is something Elizabeth Zelinka Parsons, a retirement transition expert and author of “Encore: A High Achiever's Guide to Thriving in Retirement,” sees all the time with her clients.
Even though they know they can afford to spend more money, they won’t. Like Van Sant, Parsons says a significant barrier to spending is moving from the accumulation phase to the spending phase.
“There needs to be a recognition that you saved all this money so you can be able to use it,” says Parsons. “Dying with it is not that rewarding."
How to overcome being too frugal in retirement
Having a lot of money that you are reluctant to spend isn’t a bad thing in and of itself, but if it prevents you from enjoying your retirement, it can be.
That’s why financial advisers say part of their job is getting clients to overcome that reluctance. Here are four ways to get more comfortable with an appropriate retirement spending level.
1. Shift your mindset
We spend our entire working lives saving for retirement, so it's not surprising that people struggle to spend it when they retire. Shifting the mindset from saver to spender can go a long way in getting out of a frugal mode.
“The whole point of saving is so you can draw down to supplement or completely take care of your expenses when you are no longer working,” says Parsons. “There has to be a mind shift. A recognition that you are saving all this money so you will be able to use it.”
One way to shift that mindset, says Parsons, is to find purpose in the money being spent in retirement. Just like saving during your working years has a purpose, to support you in retirement, so too can spending.
Ask yourself what you're saving for beyond security. If your money covers your security and you have more left over, identify purposes for that money, whether it's going on a bucket list trip, giving to charity, or helping a friend or family member out.
“Money in the bank doesn’t have a lot of meaning beyond security,” says Parsons. “Did you save so you can travel? Did you save it to help your kids buy their first home? Connecting the money to purpose is very helpful.”
2. Plan how you’ll spend
The fear of running out of money can be paralyzing, especially when the stock market goes south.
To overcome those concerns, Eric Herzog, a financial adviser at Prime Capital Financial, says it’s important for people to look at retirement as climbing a mountain.
You invest money, your account grows while you’re working, you get to the very top where you have enough money to retire and then it’s time to start spending the assets and go down the mountain.
While the trek down can be challenging, he says showing clients it's OK permits them to spend.
“We do a lot of educating on the front end to help them understand the probability of the financial plan working out and what the success rate looks like,” says Herzog. “The best advice I give them is to be clear about the amount of money they are willing to draw down and to identify the amount of money they want to leave to family, charity or whoever it may be at death.”
It may be uncomfortable to think about, but Herzog says it gives a lot of people peace of mind to spend what’s left over on living the lifestyle they envisioned in retirement.
3. Test out the scenarios
Fear can be paralyzing. A few tough months in the stock market can have retirees hunkering down and reigning in their spending. But fear shouldn’t be a reason to stop traveling, pursuing hobbies, or otherwise enjoying your golden years.
To overcome that fear, Parsons says it's prudent to test out your retirement plan to ensure it can withstand all the what-ifs. Where are you if the markets tank, where are you if the markets are choppy, where are you if returns are much lower?
If you are still ok, Parsons says you can continue to spend like you planned. “You’ve already built that risk into the portfolio,” she says.
4. Create a "permission to spend" budget
To overcome any guilt or worries about spending too much money in retirement Parsons says to create what she likes to call a "permission budget."
If your goal is to travel the world in retirement or help your adult child purchase a house, add that to your budget. By creating a line item for those expenditures, you are permitting yourself to spend it.
After all, you wouldn't beat yourself up for paying your monthly mortgage bill or purchasing groceries; the same should go for your retirement goals.
“You don’t have to agonize over it. You’ve already built it into the game plan. Otherwise, you may find yourself holding back and not taking that trip or doing what you want to,” she says.
5. Remember, retirement is a journey
During our working years, we are told we need to save X amount to maintain our lifestyle in retirement, but people forget that our lifestyle tends to change over the years we are in retirement.
During the early years of retirement, known as the "go-go phase," people are healthy and still young enough to pursue hobbies and travel, which requires money.
As we age, we move into the "slow-go phase," where our activities and spending slow down. In the no-go years, retirees are typically the least active; barring any unplanned illness or injury that requires long-term care, they spend the least money.
You don’t want to miss the go-go days by trying to save money and not be able to enjoy your retirement when you are ready to spend. That can result in regrets you can’t take back.
“As we get older, the thing that is scarcest for us is time, not money,” says Parsons. “Assuming people have enough money, it's better to use your resources to do things you want to do.”
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