How to Retire: Transition From Saving to Spending

Christine Benz: Hi, I’m Christine Benz from Morningstar and welcome to the How to Retire podcast. It’s a companion to my book, which is also called How to Retire. Each episode will provide a bite-sized lesson about how to do some aspect of retirement well.

One of my favorite personal finance journalists is author and Washington Post columnist Michelle Singletary. Happy to say that I’ve gotten to know Michelle a bit through our regular conversations. In her work and presentations, she frequently discusses her thriftiness. So, I wanted to discuss with Michelle an issue that I’ve observed through talking to a lot of retirees—that if they’ve been good savers like Michelle, it’s difficult to flip the switch into spending. I asked her to discuss that transition in her own household.

Michelle, thank you so much for being here.

Michelle Singletary: Oh, it’s my pleasure always to talk to you.

Transitioning From Saving to Spending in Retirement

Benz: Well, I love talking to you, too. And I wanted to talk to you specifically about this idea of moving from savings mode to getting into spending mode in retirement, which is something that you and I have talked about over the years. In your contact with your readers, have you heard from them that this is a difficult transition that they have to make when they get into retirement, that they begin spending from their portfolios?

Singletary: It is. Other than what the market is doing, it is the top reason why people have so much anxiety. There’s a lot of press about how to spend down, what percentage, 3%—you guys did a great report about, is it the new 3 or a 4?—but really what I’m finding when I talk to both my readers and in my community and other people who’ve retired, like my husband, is that, if you’ve done everything you’re supposed to do, “I’ve spent the last 20 or 30 years saving. And now you’re telling me I got to spend?” And it’s so difficult, the psychological block to spend down as opposed to save up. It’s tremendously difficult. It was for me, it is for me. My husband’s OK. He’s like, “Let’s spend that money. We’re not leaving all that money to children.” But, you know, I’m still working. He’s retired. And I’m going to be really honest. It’s really stressful for me because, you know, I am a saver. I’ve been a saver since I was a wee little person. And even though we haven’t tapped his retirement money yet, you know, it’s coming. And I just, I’m like, “How can I do this and not be afraid?” even though I know that there’s no reason for me to be afraid.

How to Plan for Retirement When Your Spouse Doesn’t Retire at the Same Time

Benz: Yeah, so I wanted to discuss your personal journey, Michelle, which I think is an interesting element in this with your husband retiring, but you’re still working. Can you talk about how that has felt that you’re looking at spending being upon you eventually and thinking about how you will shift in terms of your mindset as you make that transition?

Singletary: Well, I’ve listened to people like you and other experts. I’m a personal finance expert, but I have to talk to other experts for my personal life.

Benz: Same.

Singletary: Sometimes it’s hard to practice what you preach, but I do try to do that. And so my husband and I actually started preretirement planning probably like 20 years ago, if you can believe it, because we knew we wanted a certain glide path into retirement. And so it started with making sure that we had no debt for college for our children and that we were saving in our respective retirement plans. We had the right insurance. We’re trying to be healthy so that we can not have so much healthcare costs. And one of the major things that we decided was that we would not take a mortgage into retirement. And so whoever retired first, if we retired together, we would not have a mortgage. And so over the last 30 years, we’ve been putting money away toward the principal of the mortgage. And when we did refinance, we financed down from a 30 to a 15. So we did all those things to put it in place so that once we retired, we could not be so anxious. And that’s the plan. And it went smoothly. All of that happened. So you’re asking me, why am I still freaking out?

Because when you look that, there’s not going to be those regular paychecks coming in. We went from a household of having four paychecks a month to two paychecks a month. And that math is like driving me insane right now. And so that’s the difficulty. And then you hear all the stuff happening with the markets up or down, and it just, you just wonder, “Am I just going to have enough to live for the next maybe 20 or 30 years?” And it looks great on paper, but we know life happens. And so that’s probably what’s feeding my anxiety. As much as we’re trying to take care of ourselves healthwise, you just never know what’s going to happen. Cancer diagnosis, dementia, you fall down. As you get older, when you fall, things break quicker, and it takes longer to heal. And so those are the things that go into when we talk about retirement planning. We should spend more time talking about how do you prepare yourself mentally for a time when you’re drawing down on that money that you’ve saved for all of those years.

Are Annuities Helpful for In-Retirement Cash Needs?

Benz: Yeah, you know, I read up on this, too, Michelle, and it seems like one solution that I hear offered is maybe purchasing some type of a very simple annuity that pays you a stream of your portfolio throughout your lifetime, that it sort of gets you out of this habit of having to invade your portfolio for withdrawals. You just get that check in the mail. Does that idea appeal to you? Do you think it holds water for people potentially?

Singletary: This is such a difficult question to answer because it’s all over the place in terms of people’s opinion of an annuity. I am in the camp that, for many people, like my husband and myself, we do not need an annuity for a couple of reasons. And I met with a financial planner, and I love that I did that because my husband and I have been stress-testing our financial plan over the years. So we hire a financial planner to just look at everything that we’re doing and tell us: Are we going to make it to our 90s? And the last time we did that, he was like, you’re going to make it to 150. And I asked him that question, “Should we put some of it away so we get that regular …?” He said, listen, because we don’t think about all the other annuities we actually do have. So my husband worked for the federal government, so he has a pension, which is an annuity, right? He’s going to get a certain amount of money, and he is, he’s been getting a certain amount of money every month until he passes away. When he passes away, if I’m still living, I’ll get half of that. I have a pension.

I’m fortunate enough to have a pension with The Washington Post. There’s a whole other thing I’m going to do about that. I’m going to take the lump sum and invest it. But let’s just say I took the monthly annuity, which is an annuity, a pension is an annuity. And so he said, and we both get Social Security. So that’s four streams of payments, which are annuities. And so he’s like, “You don’t need to give an insurance company your money to hold when you already have that in place.” And even if one of us passes away, we’ll still have three streams of fixed income coming in. So if you’re in that situation, for me, I don’t think I need one. And I’m not that worried about the market returns. For me, the principal thing is I don’t want to turn over all of that money to someone else, and it takes control away from it from me. And if something happens to us, we can leave that to our heirs.

And I know you can buy products that kind of help with that concern. But for me, it was control. And I want full control over my money. We’re very disciplined. We’re not going to go spend it all. We’re going to invest it wisely. And if you can do that, and many people in our boat have done that, if you’ve been saving 20, 30 years and you got to the point that you’ve got a good portfolio, you don’t have to be scared to turn over your money.

Now, having said that, there are some folks that no matter what you say, they are going to freak out about any downturn in the market. They are so worried. Maybe they don’t have a pension, although they probably have Social Security. So for them, it may be appropriate.

But my caveat is that if you’re going to buy an annuity, please, please do your research. Look at the fees, because the fees can erode the value of that money over time. And if you do all of that, and if you’re really going to put the work in, you’re not going to just listen to a salesperson, and you’re going to do the work, and it makes sense for you, then OK. But it does not make sense for my husband and I.

Delaying Social Security in Retirement

Benz: Those are all great points, Michelle. And I completely agree on the importance of due diligence and getting some objective guidance on that.

You referenced Social Security, and I think that for people who are just heading into retirement, Social Security can look so comforting, like can I just start some income flowing through the door? But people have heard about the value of delaying Social Security. So how should people think about that: As much as they want the stream of income that they would get from Social Security, how can they think about delaying as maybe the greater good in this situation?

Singletary: What a wonderful question. I think you need to stop listening to everything else and get a piece of paper or you can do it on your computer. I like paper. And do a little chart for yourself. If I take it at 62, you’re going to get a reduction, right? As much as I think 30%, right? And each year it goes down as you wait closer to your full retirement age and then 70. You know, if you wait after your full retirement to 70, it’s about 8% a year, right? So you have to think, “OK, from 62 to 70, what money is coming in, and how comfortable am I?” And if you have some health issues, so those two things you have to look at, the money coming in and where’s your health? And we don’t know when we’re going to leave this earth, right? We don’t know. And that’s the big unknown. But you can look at your family history. You could look at your health. What kind of issues you’re dealing with, and kind of gauge, right? And so we are right there at this moment with so many people. My husband will be 63 next year. I ain’t going to tell you how old I am.

Benz: It’s OK.

Singletary: I’m over 60. Even though I look 25. And so what we’ve decided to do is we’re looking at what’s coming in, what’s going out, and are we comfortable? And if we’re not comfortable, then he’s like, we’re going to, he’s going to collect. He’s not going to listen to those other things because it’s a very individual decision, even though we write about “wait till 70″ or “wait till your full retirement age,” it’s very individual to you and your circumstances. If you are stressing and there’s not enough money coming in, then you should go ahead and get the Social Security. And the way they have factored it out, that really, we’re all going to get about the same amount of money. I mean, people are going to say, “Oh, you’re going to get more at 70,” but you have fewer years to get that money. You collect earlier, you’re going to collect it for a longer period of time.

And so we’re looking at it and right now we’re fine. I’m still working. He’s collecting a pension. We paid off our mortgage, which was the biggest part of our budget. And so he doesn’t have to collect it, and we’re going to let that money grow. And this is how we look at it. If we took the money and invested it, could we make what the Social Security on a guaranteed basis? We could not, right?

Social Security is going to go up and its inflation-adjusted. So we couldn’t, there’s nobody in the market that’s going to guarantee you that. So we said, “OK, we’re going to pause on taking it.” If it gets to the point where we need the money, then we would, we would go ahead and start collecting. So for right now, we can delay both of us at least until our full retirement age. And then we’re going to make that assessment again, because between our full retirement age and 70, which we know for us is 67, so that’s, you know, “OK, can we wait for that 8% return till 70? Could we get that in the market as a guarantee?” And if we don’t need the money, then we probably will wait till we’re 70. So these are the kinds of things that you have to think about for your individual situation. And don’t let anyone make you feel as if you are not financially savvy if you don’t wait till you’re 70. If you have some health issues or you’re like, “Every month, I’m just, I can’t travel. I can’t do some things I want, but I’m going to wait till 70.” Then it might mean that you take it earlier.

If you’re working, for example, my husband actually got a little part-time—I shouldn’t say little—he got a part-time job working with our church. And so when you’re working, there’s a reduction in how much you get for Social Security if you make over a certain amount of money. And so we don’t want to do that either. There are all those kinds of things that go into the decision. So just get a little paper and write all that down. And if you can check off all those boxes, then you’ll have a comfortable understanding of when you should take Social Security.

How Couples Can Approach Different Money Mindsets in Retirement

Benz: That’s super helpful. The last question I wanted to ask you about, Michelle, is you and your husband, I’ve met your husband, and I know that you’re on the thrifty side of the spectrum, whereas he is a little more comfortable spending. So maybe you can provide some counsel for couples embarking on retirement, how to find harmony, even when you have different approaches, different money mindsets.

Singletary: Yeah, you know, we are both frugal, but like you said, I’m definitely crazy frugal. He’s reasonable frugal. The key is communication. If you are married or you’ve got a partner, you got to talk about everything and put it all out there. Your fears, what you’re worried about, what your hopes and dreams are. And so we have been communicating this entire time we’ve been married about money, and we have rules. And so like, for example, even with him taking Social Security or me, he wouldn’t take it without me agreeing because we’re a partnership. Right. And so we would talk it out and then come to a conclusion. He wouldn’t just go, and even the decision to retire, he wouldn’t just say, “Hey, I’m retiring with whatever you. I don’t care what you think. I’m ready to go.” We had a discussion about it, and I was concerned about some things. And finally we decided as a couple, OK, you can retire. Same thing with collecting Social Security. Same thing about what we take out of our retirement portfolio. Even the timing of us both retiring, because at some point we had thought, “Well, we both want to retire at the same time” and I’m not ready yet. And he was like, “OK, we can work with that.” So the key is to talk about it, and you really need to be able to communicate effectively what you want and what you don’t want. Like some couples, somebody might want to move and the other one’s like, “I’m fine where I am.” You have to work that out. And if you can’t work it out with each other, I’m telling you, I’m a big believer in therapy, and couples therapy, so that you can sort of get to what’s going on and why you can’t make a decision together.

And in the financial space, we talk about portfolios and when to take Social Security and annuity, but the one thing we don’t talk about is the need to maybe have somebody else come in and help you with this in terms of therapy. And I’m a big believer in mental health. And this didn’t sound quite right, but what I mean is that if you’ve got some mental health concerns or issues that you find somebody, couples therapist, or there are therapists who specialize in money issues, to help you work through these things. Because when I talk to readers and I talk to financial planners, you know what the major thing is, it’s not even the numbers on the paper. It’s the issues that people bring to the table. “I grew up poor, so I can’t spend.” This happens a lot of times. There’s one spouse who wants to spend and another spouse is like holding on to every penny, and it drives the other spouse crazy because it’s like we spent 20, 30 years saving, and I can’t take a vacation because you’re so scared. And that creates conflict.

Christine, I know we’re probably going long, but a couple of years ago, several years ago, there was this big thing about gray divorce, people who are older divorcing. And at the time I was sort of very arrogantly thinking, “Well, if you made it that long, why can’t you make it to the stretch?” And I didn’t quite understand how people would be married for so long and then get to their 50s and 60s and 70s and divorce. But now I actually understand because if you are on two different pages in terms of how you spend your money and you’re this miserly spouse and your other spouse is like, “Honey, can’t we just go for a weekend somewhere?” And if that person is unrelenting about that, I can see how the other spouse says, “You know what, I only have so many years left.”

As my husband says, we have more years behind us than in front of us. And I can see that person saying, “I’m out. I can’t, I want to live my life.” I’m not suggesting that’s what you do. That’s why you get therapy. But I understand it now. And if you’re that couple, you get help. In addition to a financial planner who helps you with your money, get someone to help you with the mental issues, the conflict that is going on in your marriage. And it’s that totality of that picture that will help you go into retirement healthy and happy.

Benz: Michelle, always love talking to you. Great advice, as always. Thank you so much for being here.

Singletary: Thank you for having me.

Key Takeaways

Benz: Here are some of the key takeaways for me from this conversation.

First, it’s very, very common for people to feel uneasy to switch from squirreling money away to spending from that portfolio. It’s common and very normal. It’s also common for couples to differ a little bit in their attitudes about this transition.

Next, the conversation with Michelle points to the value of enlarging lifetime income, whether you’re lucky enough to have a pension like Michelle does, or you’ll be relying on Social Security for that. As Michelle points out, delayed filing for Social Security isn’t right for everyone, but it can be a good way to help increase your lifetime income if you think you’ll live a long life or you have a younger spouse.

Finally, I’ve also become interested in simple income annuities as a way to help some people get over their reticence to spend appropriately from their portfolios. Of course, there are some terrible annuity products out there, so you have to do your homework. Ideally, you’d get an objective opinion on the appropriateness before purchasing any sort of annuity contract.

My book, How to Retire, goes even deeper on retirement spending, with experts like Wade Pfau, David Blanchett, Jonathan Guyton, and Ramit Sethi.

Thanks so much for being here. I’m Christine Benz for Morningstar.

Watch more from How to Retire with Christine Benz.