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Is there such thing as a license to spend?

Darryl Rosen • Mar 18, 2023
In my last post which you can read here, I said something truly revolutionary.

It’s hard to know how much money to spend in retirement.

I talked about my father and his journey. His illness right now is such that he can’t enjoy his money anymore. It’s just used for his care.

I mentioned what I consider the worst retirement outcome of all.

Diminished Quality of Life  

When the enormity of the potentially overwhelming, seemingly make-or-break uncertainty of retirement causes you to spend less money…thereby reducing your happiness, comfort and quality of life. 

Thankfully, there are other ways to manage (or improve) your chances of having a higher quality of life. An alternative to spending from investments is to transfer the risk of an unknown lifespan to an insurance company to purchase a fairly-priced income annuity - which acts like a pension plan. 

Sometimes, I hesitate to utter the word annuity to clients and prospects because there is so much misinformation out there. Yes, there can be bad actors and bad solutions; however, the prevalence of scary “Internet” myths often cause retirees to ignore what might be a perfectly good solution for them.

The data is clear!  

Researchers looked at households with at least $100,000 in savings and compared how much money the households could be spending in retirement, versus how much they actually are spending. 

They found that households who hold more of their wealth in guaranteed income spend significantly more each year than retirees who hold a greater share of their wealth in investments.

Have you seen this play out in real life? (I have!)

With my clients who have pensions. They spend their pension income. All of it, You don’t hear them talking about spending only interest income or keeping their principal intact. They live!

Estimates suggest retirees will spend twice as much each year in retirement if they shift investment assets into guaranteed income wealth.

In other words, every $1 of assets converted to guaranteed income will result in twice the equivalent spending compared to money left invested in a portfolio. 

These findings have important implications for retirees.

While studies have generally focused on the economic benefits, shifting assets from savings to lifetime income can provide a retiree with a plethora of psychological benefits - hopefully while they are younger and healthier. 

The researchers termed it a “license to spend.” I think of it as enjoying the spoils of your wealth while you still can.  

I’ll share some numbers with you in my next post.


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