We're 67 With $5.8 Million. I Want to Spend $300K on Home Renovations and a New Car. My Wife Is Opposed.

Question: We lived below our means our entire careers. We're now 67 with $5.8 million and about to take Social Security, which will provide $5,000 a month. I want to spend $300k on home renovations for our cramped and outdated house. I also want a new car. My wife is opposed. How do I get her to loosen up?

Answer: Many people who retire with large sums of money get there via hard work, frugal living, and diligent saving. If you've reached the age of 67 with $5.8 million saved, you're most likely looking at a comfortable retirement, especially if you're used to living modestly.

Plus, if you have $5,000 a month in Social Security coming your way, you may not have to tap your savings too heavily to cover your essential needs. That gives you more wiggle room to really enjoy that money and splurge on things that enhance your quality of life.

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But what if your wife is struggling to do that? You may be looking to spend $300K on home renovations and a new car, which are reasonable things to purchase — especially if you have a $5.8 million nest egg to dip into. But if your wife is used to spending minimally, it may take some convincing.

Here's how to get your wife on board with enjoying your money while acknowledging her hesitation.

It's not an unreasonable sum to withdraw

At first glance, $300,000 might seem like a huge chunk of money to withdraw from a retirement nest egg in one fell swoop. But Eric Croak, CFP and President at Croak Capital, insists that it's not earth-shattering.

"Two retirees starting at age 67 with $5.8 million and $60,000 of Social Security income are already in good shape from most planners' perspectives," Croak insists.

As he points out, $300,000 is only about 5.2% of the total nest egg. Using the popular Monte Carlo model, this might reduce the probability of success by about 2% to 5%, depending on asset allocation, planned withdrawals, and market performance. But that, he insists, is not a huge deal.

"If your plan showed a 95% success rate before the [planned spending], you'd likely be around 90% to 92% after completing the spending. That's still very comfortable for most couples aged 67 to 72 with 25 to 30 year time horizons."

It's hard to change a frugal mindset

While Croak feels that $300,000 is a reasonable amount to spend early in retirement in this situation, he agrees that the hesitation may be more of a mindset issue than a financial one.

"On the behavioral side, I think the wife is likely reacting less to the $300,000 spend and more toward spending in retirement in general," he explains. "After saving for 40 years, it really does train your brain to view spending as the enemy instead of running out of money."

What Croak suggests in situations like these is to create a written retirement income plan that clearly defines a "lifestyle bucket" for housing, travel, cars, and other expenses over the next few years.

"When spending is planned for… it no longer feels like dipping into your safety net," he says.

Croak also suggests running a stress test to show how the plan can handle a simultaneous 30% market downturn plus the full spending amount. If the plan survives, Croak explains, then withdrawing the money becomes less scary.

Randy Jaramillo, founder and president of Reliant Wealth Management, agrees.

"The outlook has to be with the idea of replacing spending with permission structure," he says. "This couple must work together to define a safe annual spending number and a one-time spending bucket."

It may also help to directly address your wife's fear of spending money. Even if the numbers back up your plan, you don't want to dismiss her hesitation. Instead, have a calm discussion that's rooted in firm numbers.

You don't have to spend it all at once

Even if you can afford to tap your nest egg to the tune of $300,000, Jaramillo says that for someone with a saver's mentality, it can be difficult to see such a large sum of money get withdrawn at once. That's why he suggests a tiered approach to that spending.

"You can break the $300,000 in two phases," he says. "Year One, partial renovation, and in Year Two, you could take $150,000 and finish the renovation plus the car."

This may be a reasonable compromise, he says, especially if you can also show your wife the value of spending the money.

"Frugal spenders hate waste and value meaning," Jaramillo says. But if you show that the renovation lets you both enjoy your home more, your wife might have an easier time getting on board. Spending in stages also allows adjustments if the market takes a steep dive.

Jaramillo also recommends running what he calls a "regret test."

"What would you regret more at age 85? Never enjoying what you built or spending $300,000 now?" he says.

The bottom line, says Jaramillo, is that a couple in this situation can easily afford to spend $300,000 on lifestyle enhancements with minimal risk. "The real challenge is rewiring a lifetime of frugality," he says.

Read More

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