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Things That Make You Go Hmmm

Things That Make You Go Hmmm

March 25, 2024

According to Wikipedia, "Things That Make You Go Hmmm..." is a song by American dance group C+C Music Factory. It was released in June 1991 as the third single from their debut album, Gonna Make You Sweat. The song was inspired by a running gag on The Arsenio Hall Show, where Arsenio pondered certain thoughts while allegedly on a long drive and referred to them as "things that make you go hmmm....".

Source: Imgflip

Given the state of today's world, all kinds of things could make you go hmmm. This becomes obvious when we look at our political divides, our society’s economic and wealth disparities, and the passion with which people fight with or against others they barely know on social media platforms.

Today, much like Arsenio Hall, I will take one of the great questions I ponder…"Why is it so hard to get many of our clients comfortable with spending money they have worked so hard to save?".

Of course, this does not apply to all clients. I have many clients who spend at reasonable levels to achieve their cash flow and standard of living goals based on their assets. I also have a few who spend aggressively. We regularly discuss pumping the brakes and maintaining a sustainable withdrawal rate throughout life expectancy (those of you reading this know who you are).

However, more than a third of my clients have resources beyond their needs but still struggle with spending these excess resources for their own enjoyment today, helping their kids or grandkids or helping others through charitable distributions (once again, those of you reading this know who you are).

Why is this? Great question. I firmly believe that much of it is rooted in habits formed during the accumulation phase of life. As I have mentioned previously, there are several habits that clients who are successful savers and accumulators tend to share:

  • No matter what they make, they spend less than that, saving and investing the difference.
  • They pay down debt quickly.
  • They don’t make impulse purchase decisions for things they don’t really need based on credit.
  • They don’t make irrational investment decisions based on the latest tip they got at the golf course or the beauty shop or through some online blog.

Unsurprisingly, the cumulative effect of these good habits over long periods of time can lead to the successful accumulation of wealth. Unfortunately, those same habits can cause people not to feel comfortable flipping the switch when they retire and spending the funds they worked so hard to accumulate for the things they want to do when they retire.

A recent study from BlackRock, in conjunction with the Employee Benefit Research Institute, had similar findings. Many retirees hardly touched the money they worked so hard to save. The study showed that across all wealth levels, current retirees still have approximately 80% of their pre-retirement savings intact, almost twenty years into their retirement.

To better understand this phenomenon, BlackRock engaged an outside consulting firm to conduct in-depth interviews with retirees and survey over 1500 others to better understand how they feel and think about spending and investing during their retirement years.

There were several important themes and lessons learned from this research. One of the most important is that many retirees prefer not to touch their principal. They would rather feel financially secure than try to live it up during the early retirement days when they are healthier and have more energy.

In a confirmation of my earlier thought process, it seems that saving and accumulation habits die hard. Many retirees have a considerable fear that they may experience a financial or medical shock that could cause them to deplete their funds. There is also a general concern that I could outlive my money if I don’t keep saving.

Another interesting finding was that retirees with defined benefit pension plans, much like many of our parents had, have more consistent income and, therefore, are less likely to spend down their assets. The study found that only 25% of retirees with the pension are likely to touch their savings. Meanwhile, 55% of people without a pension dipped into their retirement savings assets. 

Source: Blackrock

The study also found that men and women approach their finances in retirement differently. Women tend to be more risk-averse and have higher levels of financial worry than men. These concerns are not without basis, as women often outlive their husbands and have longer life expectancies. This causes them to worry more about depleting assets.

Finally, think about everything we have lived through over the last 25 years from a financial and economic standpoint. The bubble, 9/11, the failure of AIG and Lehman Brothers, and COVID have caused many recent retirees to have less optimism and report higher anxiety than people who retired more than a decade ago.

Source: Blackrock

As our good friend and the estate planning attorney to many of you, John Rasnick, used to say in our meetings, “In the whole history of the world, there are only three things we have ever figured out that we can do with money. Spend it, save it, or give it away. And if you don’t give it away while you are living, you will give it away when you die because you can’t take it with you”. We miss John and his wisdom every day.

We work hard to develop financial plans that give people the confidence to save and accumulate what they need to be able to make a successful transition from work life to retirement life. We also want them to have the confidence to spend these hard-earned resources on the things that bring joy and fulfillment during their retirement years.

There have been many times when I have observed a client's estate after they passed and wondered why they had so much money at the end. Why didn’t they enjoy life more along the way? After more than 35 years as a financial planner, this is undoubtedly one of the things that “make me go hmmm.”

The CFPs of Impel Wealth Management are here to help you have the confidence you need, instead of fear and anxiety during your retirement years. We believe this is critical as we continue “Moving Life Forward.” Please reach out if we can help.

© 2024 Jesse Hurst

The views stated are not necessarily the opinion of Cetera and should not be construed directly or indirectly as an offer to buy or sell any securities mentioned herein. Due to volatility within the markets mentioned, opinions are subject to change without notice. Information is based on sources believed to be reliable; however, their accuracy or completeness cannot be guaranteed. Past performance does not guarantee future results.

Investors cannot directly invest in indices.

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