My Biggest Financial Challenge (And I Am Not Alone)
I feel like I’ve got a good grip on our family’s finances. I have done my job making sure that our investments are well-diversified and meet our risk tolerance. My wife usually agrees – as she did last weekend when we were in Chicago. Just before she purchased a rather expensive coat, she looked at my son, nodded toward me and announced, “my financial planner says I can buy this.” (I didn’t argue because she was right). When you add the fact that my wife and I are more savers than spenders — that is when we are not in Chicago — we are in a good place financially.
For me, my wife and a lot of other folks, the problem isn’t on the saving end; it’s on the spending end. I’m afraid I’ll never quite be comfortable with spending the money we saved and invested for retirement. If you are a client of mine, you know about Bill Bengen and the 4% rule. I crunch the 4% rule numbers all the time not only for clients but also for myself and my wife. And each time I come to the same conclusion: our typical monthly budget is far below what Bill Bengen says we can spend. For some reason, even though I crunch the numbers and come to that conclusion, at some point tomorrow I will re-run the numbers again…just to make sure.
I also often need to remind myself that the 4% rule is the absolute safest withdrawal rate and it assumes everything bad that can happen does happen. The 4% rule lives in the world of a 99% success rate. If you’re willing to be a little less cautious, you can substantially increase the withdrawal rate. If you can live with a 75% success rate, you can withdraw over 6%. Heck, even a 10% withdrawal rate still has a 50% success rate under the 4% rule analysis.
For some people, crunching and re-crunching the numbers probably amounts to paranoia. That’s according to Jordan Grumet who has a blog called The Purpose Code. In a recent post called “Stop Chickening Out” Grumet reminds folks that retirement in itself is a leap of faith. Anyone already in retirement knows that is true. Drawing down your assets during retirement is also a leap of faith. Only time will tell if you got it right.
The number of withdrawal strategies are almost infinite if you’re willing to look. Guardrails, 30-year TIPS ladder, safe bucket approach, they go on and on. I find one of the most valuable things I can provide to people who are right on the cusp of retirement is confidence and courage that they will be okay. I know they will because I’ve objectively crunched the numbers and worked with retirees over my decades-long financial planning experience. But I also know the emotional block because despite all of my objective evidence, I still get hesitant on the personal side. I think it’s just human nature.
I’ll end with my favorite quote from Grumet’s article: “People don’t talk about this enough, but the hardest part of retirement isn’t the math—it’s the courage.” Courage to start a new life post work, courage to start spending money you’ve worked hard to save and courage to stick to your plan when the market inevitably drops.
If you feel hesitant about spending your money in retirement and you keep running the numbers, remember that you’re not alone. A good financial planner can help you create that invaluable courage you need for the next steps. Or perhaps you can just look to your spouse for support. I’m sure it won’t be long before I hear my wife telling one of my sons that her “financial planner” gave her the thumbs up for the next big purchase. (She’ll probably be right).
Fun Fact: Speaking of courage, perhaps you’ve heard of Alex Honnold. He’s the mountain climber who was the subject of the National Geographic documentary Free Solo. In 2017 Alex successfully scaled Yosemite’s 3,000 foot El Capitan without ropes or safety gear. If you get a chance, it’s a must watch. When asked about the challenges of the climb, Alex said the following: “The big challenge is controlling your mind, I guess.” Hmm, sounds familiar.
