Retirement Spending Peaks Earlier Than You Think

Retirement Spending Peaks Earlier Than You Think

As Victoria with Vitality Investments explains to Erin Kennedy, spending tends to follow a pattern:
“Go-Go” years: Travel, experiences, living fully
“Slow-Go” years: Less activity, more time at home
“No-Go” years: Healthcare and essentials take priority

The takeaway:
Retirement planning isn’t just about how much you save…
…it’s about when you spend it.

To create a retirement plan and spending plan that supports the life you actually want to live, please give Victoria a call at 941-413-0331 or reach out to us at our contact page here.

Transcript:

Retirement Spending Peaks Earlier Than You Think 

Erin Kennedy 0:04
Victoria, good to see you. I absolutely love today's topic. Retirement spending peaks earlier
than you'd think. So here's a number that should change how you think about retirement: 12.
That is how many years the average healthy 60-year-old has before their mobility, energy, and
independence start to decline. That's from the Office of National Statistics. Do you think this
data would surprise most people?

Victoria Larson 0:27
Yeah, I think it will surprise just about everyone. Many folks enter into retirement thinking the
activities they're doing now in year one are the same type of activities they're going to do, you
know, 20 and 30 years from now. So that is a big eye opener.

Erin Kennedy 0:42
And now that we know the data, your retirement plan should reflect it. Your plan shouldn't be
designed to produce a flat income over 30 years, but to support a rich early retirement and a
more modest one later, because that's how you will actually live, whether you plan for it or not.
And this has a name of sorts, right, Victoria? Explain what you're looking at.

Victoria Larson 1:02
Yes. So, really, in retirement, if you take a 30-year span, there's really three phases of
retirement. First phase is the go-go years. Those are the years where you have the most
energy, most enthusiasm. You just finished all those working years, and you have the best
health, so people are more inclined to be active, do the international trips, join the country clubs,
and just do whatever they want to do, and that's been on their wish list. Then you enter that
second phase of retirement, that slow go years. There you start to see people kind of dial back
a little bit. Maybe instead of you going to the grandkids' house, they're coming to visit you. Then
the third phase is that no-go years. You're pretty much pretty much just chilling at home,
relaxing. You may be finding yourself going to a few more doctor's appointments because the
health declines. But those are generally the three phases.

Erin Kennedy 2:00
And the spending data backs this up. According to the Institute for Fiscal Studies, retirees'
spending on travel and leisure peaks around age 75, then drops again, not because the money
ran out, but because the physical capacity to enjoy it did. Have you found this to be true?

Victoria Larson 2:17
Yes, very much so. It's not because of the money; it's because of the physical capacity, and and
here's where I think cash flow reports kind of get it wrong. So oftentimes, when you're kind of

mapping out your retirement or working with an advisor, and there's a financial planning
software being used, it takes whatever your expenses are today and increases them by 3%
each year throughout the whole 2030 years in retirement, and make sure you're okay and don't
run out of money. When in reality, what we should be doing is front loading those first 10 years
with the fun expenses, right? And it's because that's where you want to get the most enjoyment
is on those, and then tapering those expenses later in life.

Erin Kennedy 3:03
And you've been doing this for a while, so I know you've seen this firsthand. I think a lot of the
difficult transition from going from working to retirement is that we have been so conditioned to
save, save, save. So a lot of people spend the first decade of retirement worried and concerned
that they'll deplete their nesting. They're not comfortable spending their money.

Victoria Larson 3:22
Yeah, Erin, this is probably the most heartbreaking reality, and I understand it candidly, because
the folks that come to us, they have money. They have a nest egg. Otherwise, they would be
talking to an advisor. So they have spent 20, 3040, years following a basic principle. I earn more
than I spend, and then I save diligently and systematically. So they've really built up that saving
muscle. Now all of a sudden they reach retirement, and a switch gets flipped, and it says,
"Okay, congratulations, you've retired. Now start spending, and they don't know what to do
because now you've got I've got this nest egg. It's supposed to last my whole retirement. That
could be 3040, years. It's really an unknown number, and I don't know how to do that safely. So
what happens is people underlive their lifestyle, so they they spend less in those first 10 years,
and which, by the way, are the years where they are the healthiest,

Erin Kennedy 4:30
where they should be spending exactly.

Victoria Larson 4:31
God forbid there's a market decline because then it's like there's a fiscal freeze, and they go,
well, I don't know if we can afford to go out for dinner, so it's this is where the solution comes
down to planning, working with an advisor to kind of help build a plan. I call it permission with a
plan. So it's saying what are your expenses, and then saying hey, what if we built in 15,000 or
$20,000 a year for travel. And I can show you that you're still going to be okay at 90. That
seems to reduce the stress,right?

Erin Kennedy 5:06
Yes, it all comes back to yeah, peace of mind having that plan.

Victoria Larson 5:10
The plan is essential here, right? And I'm glad

Erin Kennedy 5:13

you said that because to me the takeaway is that retirement planning is not just about saving
enough. It's not just about a magic number in the bank, right? It's about knowing when to spend
it too, and that answer is going to change depending on when you retire, depending on how old
you are. It's so many different variables that are out of our control.

Victoria Larson 5:32
Right, right, yeah. Saving gets you to retirement. Spending wisely gets you through it, and we're
not just talking about spending carefully. It is really being able to spend on time, trips, memories,
time with people you love. They have an expiration date, not your money, right?

Erin Kennedy 5:51
That's what we've worked so hard for, right? We want to enjoy that hard-earned retirement.
Victoria, I so enjoy talking to you, and this has been incredibly helpful. If somebody would like to
sit down with you, create that plan so that they can spend confidently and enjoy the early years
of their retirement, which again is so hard earned. What's the best way to reach you?

Victoria Larson 6:12
Yeah, they can email us at info@vitalityinvestments.org.

Erin Kennedy 6:17
Perfect, Victoria. Thank you for your time today.

Victoria Larson 6:19
Thank you. Bye bye.