If retirement is beckoning, then you have a tough question to answer: how much can you actually afford to spend in the decades to come? That is very hard to say, and believe it or not, many people – especially high-net-worth individuals and families – end up playing it too safe.

In a recent study in the Journal of Financial Planning (Spending In Retirement: Determining The Consumption Gap) researchers showed that affluent retirees relying on their portfolios are spending nowhere near the amount that would place them in danger of running out of money. In fact, for these people, spending actually begins to decline in retirement, mainly because there’s a certain amount of fear in spending down retirement savings. However, playing it too safe in retirement can limit your options and make life less fulfilling. Let us first explore the reasons people underspend and then how to think bigger to access all your options.

To choose optimal spending rates for each period of your retirement, you must put numbers on variables that are difficult to assess or even think about: how long you are likely to live, your long-term investment returns and estimates of other income, total living expenses, healthcare costs and any gifts and inheritance you want to pass on. There are a few knowns, such as Social Security and perhaps pension benefits, but assessing the rest often seems overwhelming. The natural response: error on the side of caution and spend less, especially during the early years of retirement, a time when you have the most opportunity to do interesting things.

How We Build Conviction

Giving yourself permission to think bigger – to apply more of your wealth toward the life you want to live during retirement — takes conviction, and that conviction can only come from being informed – through careful analysis and forecasting. This is where we come in — an experienced and objective third party that can run the numbers and provide the conviction you need. One of the key things we do with clients is an income sustainability analysis (a financial plan) that presents optimal spending rates given your needs, goals, inflation, likely investment returns and many other variables. We provide this analysis and forecasting through age 90 and beyond, including “what if” scenarios.

For instance, if you spend 20% more, how confident can we be that your money will last to age 100? We also help you decide which income sources you should take based on the tax consequences of withdrawals, as well as mandatory IRA distributions, and we choose the best timing of when to begin Social Security (especially for couples). This plan is monitored and fine-tuned regularly by us, as well as reviewed with you each time we meet.

The end result: you can make the most of the assets you’ve worked hard to build and explore all the different options for your dreams. Maybe you have always wanted to live abroad for half the year, or help a child start a business. Thinking big during retirement can be done successfully, and we can help you do it.

See also this other blog post: Retirement Spending: How Much Is Enough. 

And also this: Retiring? Give Yourself Permission to Spend and Enjoy.