The Best Savers are the Worst Spenders

Welcome to Ewa’s finlit podcast. Ewa is a fee only RAA based out of Pittsburgh, Pennsylvania. We hope all listeners of this podcast will benefit as we deep dive into complex financial topics that we will make simplified for you. And we hope that this really serves as a catalyst so that you can make the best financial planning decisions for your family and also save time. Welcome everyone to Finland by EWA, joined today by Jameson Smith. Jameson, welcome.
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Speaker 2
00:34
Yeah, thanks. Excited to have a good conversation.
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Speaker 1
00:38
This is one of the most interesting topics we deal with on a daily basis. So we work with some very amazing clients who are very successful, who have accumulated a lot of money due to a lot of hard work and sacrifice over the years. One of the paradoxes here, we’ve talked about this briefly in other podcasts, but today we’re going to do a deep dive. Is, you know, the worst, the best saver has become the worst vendors. You know, you. You have a habit of. You’re saving. We like the climbing mount Everest analogy. You’re saving, saving, accumulating. And that becomes almost. Not almost, it becomes part of your identity.  work is usually part of your identity. Family is. And then, you know, making sure you’re secure is part of your identity.
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Speaker 1
01:19
And just breaking that habit alone when you retire, not seeing your money getting saved anymore can be mind boggling for most. And then add in the fact that you’re having to take money out of your portfolio can put most people in paralysis, almost. So a lot of people. Big misconception is retirement’s gonna be so fun, we’re gonna do all the stresses. Well, you add in just this one fact of your you’re not going to want to take money out. That can be more stressful than the most stressful day you had on your job. What are your thoughts, Jameson?
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Speaker 2
01:55
Yeah, I think this is a hard sweet spot to strike because basically, like you said, people that you’re super successful in their careers, they’re high income earners, and they get a lot of reward and satisfaction of watching their accounts accumulate and saving and growing their wealth. And then having to take money out and support your lifestyle can be pretty difficult because you’re, you know, you’re maybe for 40 years, you’re just watching it grow, and then you have to, you know, take the money out. So it’s a hard mindset shift. There’s some psychology behind it and have a lot of experience in situations. It’s one of the hardest things, too. I think as an advisor is like forcing people to spend money. Yeah, it’s not an easy thing, but yeah.
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Speaker 1
02:42
So one of the, I know we’re going to talk about some examples here, but I’m going to talk in generality. But a good exercise, I think, here is when you retire, typically when you’re climbing the mountain, there’s lots, there may be 20 goals, like sending kids to private school, sending kids to college, buying a house, buying a vacation house, paying off school loans, saving for retirement, starting a business. I mean, the list just goes on and on. When you go to retirement, if you figured out how to shift your identity, how you’re going to spend your time, et cetera, we typically see it really boils down to three goals and generalities. A lot of people have many other goals that aren’t financial related.
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Speaker 1
03:23
When we look at what do we want our money to do for us, how do we want our money to support our life by design, it really comes down to three things. Those three things are one, really staying financially secure forever.  this leads into why people don’t spend the money when they retire. We want to be financially secure because the paycheck isn’t coming in. We don’t know how long we’re going to live, we don’t know inflation, we don’t know stock market returns, we don’t know if we’re going to have a nursing home experience, etcetera. So that’s one that kind of is important because you sleep well at night, but it works against today’s, you know, podcast subject of how to give yourself permission to spend.  so that’s an important one to keep in mind. It’s important one to respect.
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Speaker 1
04:03
The second one is maximizing retirement income from me and my spouse. Right. So you’ve worked hard your whole life. We want to enjoy it now. So this is completely opposite of what I just said, you know, huge paradox there between staying financially secure and you can have both. We’ll explain how. And then the third thing really is legacy for kids charity, you know, maybe surviving spouse and kids and charity. And so the, often when we look at people’s behavior, when we look at people, a lot of people that are extremely successful, they’ve usually funded their kids college, like and post grad. They probably helped their kids buy their first house. They probably gifted their money. So when I ask them, hey, how important is to leave a legacy? They typically say, it’s not that important.
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Speaker 1
04:55
You know, we feel like they’re in really good standing, they’re successful kids. And then we ask them how important it is to maximize their retirement income. They say it’s important and then they say financially secure. Usually that’s always a ten out of ten for these people that have over accumulated wealth. So then if we rank them on how well they’re doing, I mean, typically we see people, if we’re going to scale one to ten, how well are they doing on financial security? It’s a ten because they’re not spending as much as they could. How, how much legacy are they going to leave? That’s a ten. And then we see it maximize the retirement income. It’s usually a two or three. I’m going to just put a generality.
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Speaker 1
05:33
If we averaged out every client we’ve dealt with that has a net worth above 3 million and below 10 million, which is the majority of people in America that we’re working with, and we have clients well above that. But the issues and problems sometimes become different at that stage. So three to 10 million, almost 90% of the time, we could go ahead and give themselves the ranking of ten out of ten, security, three out of ten, retirement. And like, how much are you, how well are you distributing your assets? Three out of ten. And then give it ten out of ten for their kids. So their plan, if left by default of an autopilot, it’s not supporting what’s important to them.
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Speaker 1
06:17
So it takes a lot of intentional thought and really rewiring a mindset shift to get that, to keep the financial security a ten out of ten, but then also raise the retirement, you know, maximize the retirement income to ten out of ten and then maybe lowering the legacy to even like a five out of ten, because to stay financially secure, there’s always going to be a legacy because we just don’t know how long you’re going to live. So what are your thoughts on that, James? And I know you work through that on a daily basis with a lot of our clients.
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Speaker 2
06:43
Yeah, no, I agree with all that. One thing I thought of as you’re saying that I think a lot of. So if you look at statistics, it’s something close to this, like 90% or 70% of the wealth is. So in this high net worth, 70% of the wealth disappears by the generation after, so be kids, 90 percent’s gone by grandkids. And so I think that’s important is a lot of these types of people that have accumulated this, you know, in that three to $10 million range are very self made. And they may be, this is generality, but there’s obviously exceptions. They might have grown up not, they might not have had the most like, extremely wealthy parents.
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Speaker 2
07:21
So they’re, you know, when they start working and making high income, they’re wiring their brain to, I’m going to save all this money to become financially secure for what I didn’t have, you know, earlier in my life. And so super hard to flip that when they get to retirement to try to like, maximize that. So, yeah, I totally agree. A lot of times people are well on track for the legacy. They may be at a ten. And that kind of back to those statistics, that’s where some planning can be done on.
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Speaker 2
07:46
Okay, well, if that is, if the reality is, if we’re trying to get you to spend money and there’s nothing you can do with your, nothing you want to improve with your lifestyle, and the reality is there is going to be a big legacy, how do we make sure that stays intact so those statistics don’t become a reality? There’s a lot of nuances and these goals and problems kind of conflict each other. So I think, yeah, talking through a real world example would maybe give shed some light.
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Speaker 1
08:11
Yeah. Just to piggyback off that, James, I think a good exercise is do a values exercise. What’s most important to you? Get 50 cards. It could be health, education, family, whatever. Narrow it down to five and just ask yourself, ten, 110, how well is my balance sheet supporting my top five values? And that a lot of times can be a catalyst in the big life changes, big life decisions, reaching your spending capacity in some cases. The other thing I think, too, is, you know, think about your death. Like, think about death, and if you’re not going to spend it, you’re going to be the richest person in the graveyard. And the statistics you just gave are so true. Where it’s someone else is going to spend it. And typically the person spending it, that’s not you. It’s unhealthy spending.
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Speaker 1
08:55
If someone didn’t earn the money and then they spend it’s going to teach them bad habits, you’re going to lose motivation, etcetera. So if you worked hard to accumulate this money, now you’re spending it. If you have the right exercise and the right advisor and the right thought process, it can be very healthy spending.
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Speaker 2
09:13
And a lot of times when we meet these, you know, when we’re bringing these people on as new clients, if we’re working with a high income earning, 40 year old couple, we can kind of strike that balance for the next 20 years. A lot of times when we come across new clients, they haven’t had that balance for 2030 years. And so trying to do that in your sixties is really difficult. And r1 world example with a client that I work with, net worth over $20 million or over $10 million. Sorry. Early sixties, financially independent, working because they want to knocks they have to went through the values exercise and they ranked health as one of their top five values. I said, okay, how well are you doing on this? It was like a two out of ten. And they said, why? Works really stressful.
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Speaker 2
09:54
I’m working a lot. I don’t have time to focus on my health. And it’s like you have more money than you’re going to spend, you’re not going to spend it. Why are you working as much as you are? Let’s try to align this and calibrate it. So I think the values exercise is a really good one. And then another one. Just looking at how you’re spending your 24 hours day right now and knowing that, and a lot of times it’s just some awareness of like people don’t know that they’re financially independent. So it’s, they’re spending that 24 hours day in a way that they have spent the last 2030 years to grow the wealth, accumulate the wealth. And it’s just shifting, you know, time and money kind of go coincide.
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Speaker 2
10:30
So shifting how you’re spending your time to better align with that and enjoy some of your money.
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Speaker 1
10:34
No question. Couldn’t agree more. Okay, so you mentioned, let’s go through a client example. So do you have a general one in mind?
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Speaker 2
10:42
Yeah, a client I’m working with just met with this week, net worths almost $10 million. Retired, not working at all has pension, Social Security and they’ve really, everything we just described accumulated. They have enough in the pension and Social Security to live on income to cover their bills, expenses. And they literally have not taken any distributions out of the investment accounts for the last like probably eight years.
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Speaker 1
11:10
So first of all, like, it’s, pensions are pretty common for retired clients right now. Ten years from now, they’re not going to be common at all because unless you’re a government worker, a police officer, a school teacher, you’re just not going to have one in generality. So can you give us a little, like I know you just started working with this couple even a couple months ago if we’re thinking about the same person. But they what, give us a background, like what was their climbing Mount Everestage? Like how much were they making believe.
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Speaker 2
11:41
It was the two to 300,000 a year. So comfortable living.
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Speaker 1
11:46
So let’s say they were 300. So they would be bringing home about 15,000 a month.
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Speaker 2
11:50
Yeah, that’s probably spot on.
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Speaker 1
11:51
Okay. And then what is. So you said they’re not touching their investment accounts right now. So what are their pensions and Social Security after taxes?
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Speaker 2
11:56
That.
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Speaker 1
11:57
So, okay, so it gives them about 15.
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Speaker 2
11:59
Yeah.
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Speaker 1
11:59
So those are really good pension, Social Security, obviously. So they obviously working. You know, you’re. They’re probably saving some of that. They were saving some of that 15 as well. So they’re probably actually living a better.
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Speaker 2
12:10
Lifestyle now than they were without touching the assets.
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Speaker 1
12:14
And they have another $10 million. They were incredible savers. So they were obviously. Yeah, they were obviously living well under their means. And now they have more money than what to do with.
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Speaker 2
12:24
Yeah.
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Speaker 1
12:25
Interesting. So what now? What’s next with them?
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Speaker 2
12:28
Yeah, it’s a lot of, like, life planning, values planning, like we just talked about and trying to figure out what they want to do with their money. There.
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Speaker 1
12:37
We’ve.
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Speaker 2
12:38
They’ve. I’ve seen this. This is so common. They have a hard time. Like, you settle into a lifestyle and you’re happy and you’re fulfilled, and it’s like, you know, they may not. This is my opinion. I think a lot. I think a lot of people maybe get, when they start making money and accumulating, maybe. Or maybe they don’t start spending. They like, you know, material things. Then it gets to a point where it’s like people realize, this doesn’t really make me happy. And so there’s no luxury items that these people want to spend money on. It may be more like spending on traveling, potentially buying a second house, maybe selling the current house they live in full time and buying a new one.
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Speaker 2
13:16
But it’s just coming up with creative ideas where we can kind of, what you said earlier, give them permission to spend. So one thing, we’re taking the RMD’s out and we’re just building up a money market account. So we’re gonna have a couple hundred thousand in there. And it’s like, hey, just spend this on whatever you want. We’re just putting this money in cash for every single year for you to just literally fund money. Blow it on whatever you want.
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Speaker 1
13:42
So they can’t spend it monthly because their lifestyle is set, but this is going to be a way for them to do some lump sum experiences or.
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Speaker 2
13:48
Buying a new car that before they had just driven toyotas. Yeah. So buy something a little bit. I think they bought a. I don’t know what they bought, but something, a luxury car, which was new to them, spending more on travel. So one idea was that we had was spending on, like, luxury flights. So instead of flying coach, flying business class, if you’re going out of the country, little things like that. And a lot of times, once you do that, once you get used to it, and you’re gonna keep doing that, any flight over a couple hours.
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Speaker 1
14:17
Interesting. Okay, very cool.
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Speaker 2
14:20
And I would say that piggy into, in their situation, even if we do, and we could double their lifestyle, and there’s still going to be millions of dollars left over. So now it’s getting creative around legacy planning. And do we start?
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Speaker 1
14:32
Was legacy planning a priority for them at first?
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Speaker 2
14:35
No. Until they realized, like, hey, there’s gonna be money left over. What do we.
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Speaker 1
14:38
What do we do?
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Speaker 2
14:39
Yeah. Now it’s gonna have to be important.
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Speaker 1
14:40
Yeah. Okay, interesting. Okay, very cool. So I. We have some steps here of, like, what are ways to give yourself permission to spend? And so the one. The one thing is, like, health is everything, right? Health can change everything. So the number one investment should always be in your health. You know, whether that’s hiring a coach, you know, meal prepping better, being really investing in your health all around. Sleep, diet, exercise. That’s. That’s something that we often see.
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Speaker 2
15:11
I think a lot of people in this situation, they’ve sacrificed their health to achieve their working nonstop. You don’t think about it, and it gets to a point where you’re like, maybe one little thing in your health starts to slip when you get older, and it’s like, oh, this now becomes important, no question.
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Speaker 1
15:27
Okay, so the second thing would be, you know, let’s save time. Like, right. What’s your time worth? If you have a $10 million net worth and you have income? We’ll just go through this exercise right now. If you have 15,000 a month after taxes, you have 10 million. You can easily, you know, take four to 500,000 a year with the guardrails approach, maybe even higher.  so we’re talking after taxes, you know, about 40,000 a month. We’ll just call it half a million dollars a year of tax free income. So what is that? That means, you know, their. Their time is worth $250 an hour before tax. So for, you know, probably $450 an hour gross.  dollar 400 an hour gross. So what can we delegate that you do not enjoy doing?
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Speaker 1
16:11
So look at, like, let’s list out activities that you like doing, activities that you hate doing, but again, the mindset is these people probably always shoveled their own driveway. They probably mowed their own lawn. They probably cleaned their own house. They probably because they didn’t want. They wanted to save that money instead of spend it. Well, now things are different. So how can we buy back our time and make sure those top five values are being respected first and foremost? So, James, working through this, what are your top services that you recommend to retirement retired clients to buy back their time?
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Speaker 2
16:46
Yeah, this was an interesting one. Different client. They had a house in Pittsburgh and then a house in South Carolina, similar situation, had pensions, more money they’re going to spend. And I said, and they said, like, we would go down to our South Carolina house more, but we hate driving and we hate flying. So I said, what if you just hired a driver? Pay the driver, like, dollar 25 an hour, drive him down there, buy him a flame ticket. He’ll drive you down there, you have your car, stay there for three months, buy them a plane ticket back, and do that a couple times a year. And they’re like, that’s. That’s great. And they did it.  so that’s one. Yeah, I would say any. Just any type of cleaning, lawn care, anything that you just don’t really enjoy doing.
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Speaker 1
17:26
Food prep.
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Speaker 2
17:27
Food, yeah. Meal service, personal.
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Speaker 1
17:29
And that can be one way that you knock out the health. And if you hire the right meal prep that, you know, cooks it clean, then you can knock out the health, because diet’s obviously the biggest thing next to sleep in health. So you can knock out two birds of 1 st there.
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Speaker 2
17:45
Yeah. Personal trainers. Another one forces you to go to the gym. And accountability tells you what to do.
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Speaker 1
17:50
Yep. Absolutely.
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Speaker 2
17:52
Any other services?
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Speaker 1
17:54
Oh, there’s many. Yeah, there’s many. But I think the. Yeah, the reality is it’s gonna be tailor made. But just start thinking about how you’re spending your time. And is it intentional or is it reactive? It’s just that question you need to ask about how you spend your day. And one of the paradoxes, I think, that really exists with people that achieve financial securities. I haven’t seen our clients ever get lazy, but it’s easy to get lazy because I’m talking about mentally, because you’re set. What have you worked hard? So you always have to have that purpose driven mindset. What’s next? I believe just to keep mentally sharp as well.
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Speaker 2
18:33
Yeah.
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Speaker 1
18:34
So, okay, the third one was, you know, just meaningful experiences. So this could be travel. This could be renting a beach house with your kids, your grandkids I cannot tell you how many times I’ve had clients say, yeah, once we do that, we’ll go to Greece or we’ll do this. And whenever I hear that, I’m like, let’s plan on doing that this year and try to get a plan, whether it’s your points or, you know, convincing them how set they are to start living their best life today. So as far as experiences go, what are some one out of the box stuff that obviously travel is like the automated answer. I feel like that everyone gives. Well, if I was retired and was financially set, I would travel more. I think that’s great.
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Speaker 1
19:21
But I’ve done a lot of travel and it does get old to a certain point. So I think experiences don’t just have to be traveling. They can be doing stuff with friends. What have you seen?
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Speaker 2
19:31
Yeah, this is. I might have mentioned this before in the book called Die with Zero. This is a really good exercise. You basically create a bucket list of everything, like, crazy experiences you would ever want to do, and you plot it on a timeline of what point in your life would this work best? So let’s use the example of a retiree. Maybe you’re still healthy. You’re in your early sixties. Let me use an extreme example. Maybe you want to skydive. I don’t know if anyone in this.
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Speaker 1
19:58
I would do it in the sixties. I’ve already done it. I’d do it again.
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Speaker 2
20:00
Maybe you want to skydive and be like, okay, well, I’m not. Probably not gonna do this in my eighties, so let’s do this now. Maybe you wanna go to, I don’t know what, something that’s not as physically demanding, like a trip to Europe or something, just to see it. Maybe do that later on in your life when health isn’t as important. But just looking at, you know, yeah, those experiences that you wanna do could be travel, could not be. And a lot of times what we hear is, like, if, like, people just want to spend time with their family, meets kids, grandkids, and they never really. And if they’re limiting their spending just because they’re used to living below their means, it could be as simple as booking an Airbnb for a week and bringing all your kids and grandkids.
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Speaker 2
20:41
I’ve seen a lot of people just really enjoy that.
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Speaker 1
20:44
No question. I think intentionality and really thinking this through. You know, most people would talk about this for 15 minutes a year with us, but they don’t spend, you know, other than that, it’s a lot of default a lot of demands. Even when you’re retired, there’s a lot of demands. A lot of our retired clients are busier with, you know, babysitting grandkids or volunteering at the church or, you know, being involved with the community. So be really intentional about this. Cause, you know, time fills up so quickly. It’s kind of like the cracks. Cracks fill up with dirt. The universe doesn’t like space, so it gets taken up for you unless you call tips on it first. So be really intentional about how you spend your time.  okay. Then the other two would be, you know, the next one is giving.
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Speaker 1
21:23
So, this one, it comes from the heart. I mean, there’s no better, you know, way, I think, than giving your investing your time or resources, and better in a cause that you feel passionate about. So it’s. That’s pretty self evident. We’d recommend just do that as tax efficiently as possible. You’d be a lot of times you can actually get more money in your pocket and reach your charitable goals if you do it tax efficiently.
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Speaker 2
21:46
Yeah. In the same example were talking about, they kind of said, we give a little bit when they realized how much money they were going to have that they weren’t spending. Like, well, yeah, maybe giving should be a lot more important. It’s a really good way in retirement with RMD’s, whether it’s through QCD’s, which is taking RMD, giving to charity, not paying taxes. Or if you have to do any Roth conversions, you could use a donor advised fund to offset the Roth conversions. So be aware of the Medicare surcharge. But you could get money tax free into a Roth. It’s going to grow tax free forever, past your kids tax free. Plus get money into a charity account and pay zero taxes.
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Speaker 1
22:27
Awesome. Okay. And the last one would be just making sure your environment is set up for success. So make sure it’s peaceful, make sure it’s, you know, something you strive in. If you don’t like your house or don’t like the environment, change it. It’s pretty simple as that. If you don’t like the weather, move. If you don’t like the people you’re around, get new friends. So make sure the environment that I describe is where you live, who you hang out with. Literally everything is super important. And sometimes that there’s monetary ramifications of that. So that’s a good way to give yourself permission to spend, is changing, making the environment exactly the one you see fit. And a lot of times we see people will move away from stresses. Move towards something.
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Speaker 1
23:08
Because if you think, you know, if you’ve accumulated, you know, maybe a friend group you don’t like and you’re coming to move to start it, well, that’s not a reason. Go create a life by design. Don’t just run away from something that’s not working.
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Speaker 2
23:20
Yeah, no question. The one other one I want to add is you mentioned earlier having just having some purpose. So, like, you could do. We may not need to work. People in this situation may not need to work for money, but they may have a more fulfilled life by doing some sort of consulting. Could be paid or unpaid, could be charity work, or just giving your time. But any type of sense of purpose or a phased retirement is a good way to ease into this versus going working 50, 60 hours a week to working zero. There’s actually a study, it’s called the nun study, actually. It takes like, they studied these nuns, group of nuns, the psychological study. And they.
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Speaker 2
24:05
The purpose of it, without getting too technical, the purpose of it was the minute that they didn’t have any, like, work or meaning the life expectancy, like they died within like five years or something crazy. I probably butchered that, but it was something extreme like that. So the point is, the longer that you have fulfillment and purpose in your life, there’s a direct correlation to life expectancy.
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Speaker 1
24:23
Awesome. Awesome. Well, Jameson, any closing thoughts on how to give yourself permission to spend? I mean, it’s a huge paradox. We see it. I think the. Just to advocate for a financial advisor, a lot of people walk in the door with this problem and we don’t by any means solve it. But it’s like that. But it’s a consistent calibration process that we see improvements. And I’ve often seen people that try to this themselves. This is one that’s really tough. You need to have a multiple layer. There’s multiple layers of these decisions. You need to make sure you’re financially secure. And a lot of times if you try to do this, no, I can’t afford that. You need to have a financial advisor that’s running the numbers while you also have these intellectual and emotional conversations as well. The two go hand in hand.
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Speaker 1
25:09
One shouldn’t lead the way, but both should be respected as you make big life changes.
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Speaker 2
25:14
Yeah, I would say just be aware of how much money you have, what you could spend, what you are spending now and then, why you don’t want to do this yourself. If you’ve accumulated this significant of a net worth, the room for error is just huge. So, sequence of return risk, which we’ve talked a lot about, you start pulling hundreds of thousands of dollars a year, and you’re pulling from the wrong asset or a fund that’s down or something, it can be detrimental to your plans. Just make sure you’re doing it correctly and eliminating the room. For a lot of times in this situation, it’s just let’s not mess this up. How do we make sure this doesn’t? We’re not trying to double your net worth. It just, let’s just not ruin it.
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Speaker 1
25:51
Absolutely. Thanks for tuning in to our podcast. Hopefully you found this helpful. Really hope this is as beneficial and impactful to as many people across the nation as possible. So hit the follow button, make sure to rate the podcast, and please share with any friends or family members that would also find this beneficial. Thank you very much.