Many of you have heard me reference the 1996 book The Millionaire Next Door by authors Thomas Stanley and William Danko. I have usually drawn analogies between the people outlined in this book and my clients, as many of my clients have found themselves with a net worth over $1 million, often to their own surprise, due to the cumulative effects of good habits over time.
We have found that people who spend less than what they earn, save, and invest the difference, do not make flashy lifestyle purchases on credit, intentionally pay down debt, and do not make speculative investment decisions based on hot tips, whether from the golf course or the barbershop, tend to create wealth.
I call this the “cumulative effect of days”. The results of these good decisions, habits and behaviors create a compounding effect that inevitably leads towards wealth creation.
However, in an unusual corollary to this thought process, the very habits that lead to wealth creation are often times preventing people from enjoying the wealth they work so hard to create once they reach retirement.
We can divide our financial lives into two phases. The first being the accumulation phase, which starts when we begin our post education working careers. The second being the distribution phase, which starts from the day you retire until the day you pass away.
A recent study by Blackrock Research in conjunction with the Employee Benefit Research Institute showed something unexpected. Many retirees hardly touched the money they had set aside in retirement savings throughout all their working years. Across all levels of wealth, most retirees still had 80% of their pre-retirement savings remaining after almost 20 years of retirement.
There are a number of themes that lead to this outcome. We will touch on a couple of them here. Blackrock engaged Greenwald and Associates to conduct interviews and surveys with more than 1,500 retirees to determine what drives their behaviors. First of all, most retirees feel better having financial security than using their wealth to live it up during retirement.
Many retirees also have a hard time breaking out of the accumulation and saving mindset. They feel like they created financial security through a certain set of habits. They have a hard time flipping the switch and spending resources as they move into retirement. Many also fear that long life expectancy and healthcare costs could cause them to deplete assets. Therefore, they are unwilling to spend resources in the earlier days of retirement when they are younger, healthier and have the gift of time to pursue bucket list activities.
The study also found that men and women approach retirement finances differently. Many retired women report having a higher level of financial concern, and also tend to be more risk-averse than men. Many of these fears are well-founded, as women often live longer, and typically enter retirement with lower asset values or survivor benefits that will be payable to them after a spouse passes away.
In the whole history of mankind, we have only found three things you can do with money… save it, spend it, or give it away. And as we all know, if you don’t give it away while you are living, you will give it away when you die, because you cannot take it with you.
At Impel Wealth Management, our goal is to help people make the successful transition from work life to retirement life, confident that they have saved enough. This means that they will have the resources necessary to spend what they would like to create a life of meaning, purpose, and value throughout their retirement years. In turn, this should give them the freedom to know not only how much they can spend, but what surplus they can give away to bless others.
In full deference to Joe Strummer, Mick Jones, and the rest of the Clash, Should I Save or Should I Spend Now?? is a question that our team can help YOU answer. It is important to have confidence in these answers so that you, our trusted friends and clients, can keep “Moving Life Forward”.
© 2021 Jesse Hurst