Advised Podcast Ep 002: Spend The Money While Your Alive | reframing the mindset for all agesAdvised Podcast Ep 002:

Too often I see savers and responsible families not know how to distribute those savings back to themselves in a responsible way.  The end result is a fear based approach that errs on the side of caution leaving a lot of unspent dollars, and unlived experiences behind. Don't forget about TODAY, when planning for tomorrow.

Listen above or read the transcript below, and then let us know what you think of the episode!

Rick Luchini (00:00):

I don't know of a lot of folks on their deathbed that would say, I wish I had another a hundred thousand dollars in my I R A. They don't say it. It's the experiences that they had with the people that they love and the things that they did when they could do it. It's not, you don't get a bonus for dying with the biggest balance, and you sure as hell can't take it with you.

Intro (00:35):

You are listening to advise with Rick Luchini.

Rick Luchini (00:39):

Today we're going to talk about something that is really important to me. You're going to hear me bring it up a lot in future episodes of this show and the other content that I create. And that is the concept of having permission to spend your own money. Now, whatever now is to you, whether that is in your thirties, your forties, fifties, beginning, middle, or end of your retirement, having the permission and the knowledge of how to spend your money now without risking or leveraging the things that are important to you in the future, I don't think that gets enough attention. We're going to talk about that conceptually today and try to get you to make that mindset shift. In future episodes, we'll get more into the weeds about how to actually implement some of these strategies so that you can get a better idea of which one might be best for you. But today it's really just about the overall concept, why you should care about it, and some things to think about moving forward.


So the idea here is simple. The actual execution of it can be difficult, but the actual idea is quite simple, which is how do I maximize today, whatever today is for you without risking the future. So how do I spend my money on the things that I want to or are important to me today but still have the confidence that I'm not being irresponsible, I am still set up for the future, I'm not risking my future. And on the younger person's side, my millennials and basically both X and Y gen, that really can be done with a concept called for savings. There's a few other ways to do it. I'm not a huge fan for savings is my favorite. And the broad strokes of that is you set up your plan to say, based on the information we have today, this is how much I need to save in my Roth.


This is how much I need to save in my 4 0 1 K college savings accounts. And then you can bucket down to midterm goals. So this is how much we need to save over the next five years for our big house remodel that we keep talking about or whatever those things are. And quite simply, whatever's left, you can spend guilt-free. So spend it as it comes in on little guilt-free things, forego that and add it to next month or next year's guilt-free amount to do something bigger, whatever that is. But it gives you the permission to spend money today knowing that all the responsible things are taken care of in line. And now that needs ongoing oversight and adjustments because your situation's going to change, the economy changes, market performance, interest rates, all the things, right? So you just keep adjusting those numbers and maybe two years from now you're saving more or you're saving less, you have more disposable income, you have less whatever that is, you need to keep adjusting it.


But the strategy is quite simple. Here are all the important things. Once we check them off the list, whatever that number is at the end, we can do with what we please and not have any guilt or concern over, if that's wise choice or not because all the important stuff, we were already responsible, we did that. This is left. And it can be really empowering. It can allow you to do some things that maybe you wouldn't have otherwise and continue to make sure that your future is set up. Now, as for the younger folks, and it's important for them to think that way and to plan that way, but there's not a whole lot of better options to do it when you start talking about pre and post-retirement, that 50 plus, but especially after you actually retire, it can get a little trickier. You might hear or might have heard of guardrails approach a fixed, an inflation adjusted fixed percentage stages or smile.


I really don't like that one. We'll talk quickly about what that is or a dynamic approach. And all of those are some version of a strategy for retirement income. If you don't have a strategy at all, then you really need to pay attention to this. But if one of these are yours, think about how flexible it might be or not be. And consider switching that to one that maybe is. And here's what that means. If you are withdrawing your retirement savings on a fixed percentage because you read or somebody told you 3.25 is the safe withdrawal rate or 4% or whatever it is that math is assuming a lot of bad things happen in the future and you're protected against that by taking out this percentage. So all these bad things happen at different times and you still end up with money in your account the day you die.


And that's okay for a starting point. It's a good jumping off point to set a baseline, but there's no flexibility there and it definitely doesn't reward you for good market performance or for some of those bad things not to happen. And here's what I mean by that. If you're taking a fixed percentage or even a fixed percentage that adjusts for inflation, a few years go by, some of the bad things didn't happen. In fact, the market's up and inflation's normalized, everything's good. You're two years closer to the end, quite frankly. So that adjusts the math as well because there's two less years on the schedule that we need to produce income for.


You should be spending more money. The math equations going to tell you that if you went back to the drawing board, if today was your retirement date instead of two years ago or three years ago, the math now would say you can spend more because you have the same amount of money with less years or in some cases you have more money with less years. The problem is you picked that number two years ago or five years ago or 11 years ago when you retired, you did it yourself because you read an article about it or your advisor set it up for you and then you never changed the number. And I see this a lot, especially here in central PA because a lot of these folks are savers and they're conservative and that's a great thing, but you were saving it to spend it.


And fear is the reason why you're not. So imagine you go back to the drawing board every year and recalculate that withdrawal rate because the market is up and I am older and we do have more money and can afford it. What might that look like? What might you do with those funds if all of a sudden you got a pay raise? The reason you're not taking it or even thinking that way is fear. But Rick, I can't spend more money just because the market was up this year because I don't know what's going to happen in the future. I'm scared that I'm going to be 87 and run out of money, and I get that. I'm saying that you can actually build a strategy that checks that future risk off and still maximizes the amount you spend today. It takes a little work. I mean it's more work and it's maybe why it's not being done as much. But continuing to not monitor it, continuing to spend the same amount while you may be able to spend more is creating a big inheritance for your kids.


And maybe that's important to you. If leaving a legacy is important to you, that's great. There's other strategies that you need to consider around that that could help maximize it. Some tax playing strategies, trusts different ways to set the accounts up in order to do that. But if you were saying, I want to leave a legacy to my kids, great, you still likely will because the plan isn't to bounce your last check, it's just to spend more today. You're also going to have real estate and things like that, but consider the legacy while you're alive as well. And what I mean by that is I'm going to build this big account up that way. If there's a rainy day or things are terrible, I still don't run out of money, but really my intention is to pass it along to my kids. I want to leave a legacy with the way life expectancy is today. A lot of folks are leaving that legacy when their kids aren't kids anymore. They're in their late fifties or early to mid sixties, oftentimes, sometimes older. And a lot of times the kids have more money than the parents because the parents did a good job. So the kids had good jobs, they were good savers, and they don't really, it doesn't make the kind of impact it would make that given your kids some of that money today would.


So think about that. What's the impact of $15,000 to a 35 year old with kids at home and bills to pay versus an extra $150,000 when that kid is in their mid sixties and maybe even retired themselves? It's not as much of an impact. You don't like your kids, you don't want to entitle them. Whatever the reason is, the excuse is to not do that. Great, awesome. Spend it on yourself. Take that out of country vacation that you always say, man, that would be nice, but it's too expensive. But that's ridiculous. We could never spend that. Do it. If you know the number that you can afford, do it. We don't go anywhere. We don't want for anything. We don't want to give money to our kids. Fine. Is there a charity that you care about? There's a whole bunch of different reasons or ways to allocate the funds rather than just every single year letting 'em sit in that account grow bigger because they're going to go somewhere when you die anyways.


You cannot take it with you. Now, what's important about this conversation is not to just start giving your money away and start spending it on frivolous things. It's about having a plan. It that gives you the permission to do it at a certain level, but also the flexibility to say, if we recalculate this number next year and things have changed, you spent your bonus amount last year, maybe things change for the worse and you ain't getting a bonus this year. So you can't just blindly increase your bills over that baseline, but you can take additional bonuses or withdrawals and then allocate those to vacations, helping your kids or your grandkids donations, that sort of thing. Or every once in a while, obviously leave it in the account because next year might not be as good. We don't actually have anything to allocate it on this year.


That's fine. You don't have to do it every single year, but you need to know what the amount is that you can safely withdraw. And if that number has not been evaluated for multiple years, oftentimes since you retired, this is how much you can take out. Click, set it and forget it, and the account keeps growing. Or at least at a minimum it stays the same because the market performance is doing well and that person is spending significantly less than they could be because of fear and having that amount not be evaluated. So there's a bunch of different ways to actually implement that. On the retirement side, I'm happy to geek out on all the different strategies in the future so that you can understand them better and decide which one you are most comfortable with, which one you align more with. But I think before you go there, what's more important is just starting to shift your mindset to do I actually know what I can afford to spend?


Is it maybe more than what I am spending and what the hell would I do with it if it was sent to me tomorrow? So start thinking that way. We're going to go deeper into this on future episodes. I think it's really something that is important that young and old people start thinking about. How much can you spend today without leveraging the future? Today I'm all about delayed gratification. I am all about saving for the future, being responsible, check all those boxes off. And what I'm seeing is oftentimes there's still money on the table that's not being spent. And it's not because the person doesn't want to, it's because they're not being empowered to and they don't know that they can afford to. And so I want to bring that to your guys' attention. I want to go there a lot more this year and just to kind of recap for my younger listeners, a four savings strategy is going to allow you to do the things today or in the short term, knowing that you checked off the responsibility boxes that were not splurging on that and risking our future or our kids' future.


We're splurging on that because we actually can afford to or we're not splurging on that because we can't, but maybe we can next year. And for the retirement folks, I mean, this is really where it can be impactful. Have a strategy that actually maximizes what you can spend each year while still not risking the future. And if you decide from one year to the next not to spend it, it's still very valuable to know what that number is. And you might be surprised when you're given permission to spend it, the things you start thinking about to spend it on. Again, it can be bumped to next year. So next year's number is even bigger or so that next year's number is the same rather than going down because the market was bad or something happened. Just having an actual withdrawal strategy that caress about today as much as it cares about tomorrow, the short and medium term needs as much attention as the long-term gets because we don't know how long our long-term is, and I don't know of a lot of folks on their deathbed that would say, I wish I had another a hundred thousand dollars in my I R A.


They don't say it. It's the experiences that they had with the people that they love and the things that they did when they could do it. You don't get a bonus for dying with the biggest balance, and you sure as hell can't take it with you. So there's some things to think about there. We're going to go deeper there this year. If you want to follow along, hit the like and subscribe button. If you're watching on YouTube, if you're listening on Apple Podcast or Amazon, Spotify, wherever you're listening to, hit subscribe or add the library. I appreciate you listening and talk to you soon.

Leave a Comment

Your email address will not be published. Required fields are marked *

Content Disclosure: Luchini Financial LLC is a registered investment advisor. This content is provided for informational and educational purposes only and is not intended to be personalized investment advice, nor a recommendation to buy or sell any investment. Luchini Financial works closely with each client to gain a full understanding of their unique situation prior to rendering advice. The information contained herein is derived from numerous sources, which are believed to be reliable, but not formally audited by Luchini Financial. Information may include statements which are time-bound and subject to change without notice or opinions, which may not come to pass. Please consult Luchini Financial with any questions.

Scroll to Top