Affluence, Security, and Giving in Retirement

Do You Have Abundant Flow?

Living in Abundance

I have a client, let’s call her Shelly. For years, every time we have met to review her finances, she tears up, holds up her necklace that says ‘gratitude,’ and tells me, “I’m just so grateful.”

She is not my wealthiest client. She doesn’t own multiple homes. She lives in a cozy suburban co-op apartment to be near her daughters and granddaughter. Her needs and wants are modest.

Yet, there’s one thing that Shelly excels at:

Shelly lives in abundance.

You see, Shelly is easily my most philanthropic client in terms of giving per dollar of net worth.

Shelly gives to her church. She gives to shelters, food banks, and other causes and organizations she cares about. Last year, she started a donor-advised fund.

She also gives to her family. Recently, she endowed her grandchildren by gifting cash to their college 529 plans. She has, from time to time, helped her daughters when they hit a rough patch.

She does this because she is grateful for her financial resources and wants to spread them around so they can benefit others.

Here’s my favorite part about Shelly. At 69 years old, she picked up a part-time job at a state park tourist center. She will earn $10,000 this year, and now, at age 70, we are helping her make Roth contributions with her earned income.

Abundant Flow

Do you know the etymology of the word ‘affluence?’

It has Greek roots and means ‘abundant flow.’

Affluence = Abundant Flow

Money is meant to flow. We are supposed to move it around, and when we avoid it or horde it without intention or plan, it becomes a stagnant pond full of muck and mud.

In other words, what makes us affluent isn’t the quantity of money, it’s the flow of money through our day-to-day lives.

Certainly, a scarcity of resources can prevent affluence. Yet, just as importantly, a scarcity mindset can compel us to cling to what we have, shove it under the mattress, and refuse to allow money to continue to flow throughout our lives.

Photo by dylan nolte on Unsplash

Do You Know What Your Money is For?

What is your money for?

Can you answer that question?

One word that comes up for many of the retirees I meet with is ‘security.’ Money and financial resources offer or symbolize security.

‘Security’ also comes from Latin and means ‘without care.’

There is a deeper sense here. Will you feel secure with more? How much more? How will you feel then? Will you be ‘without care?’

How about this framing?

• Could you feel secure now at this moment?

• What would that look like?

• How would it feel?

Could You Spend More Annually?

In my experience, retirees often underspend and under-give throughout their retirement years.

I mean this, first, in a financial sense. Most retirement income advice revolves around worst-case scenarios, like running out of money. This is wrong.

It turns out that we should think less about the risk of failure and more about the risk of adjustment in retirement. In other words, if retirement is like flying a plane, it’s less about worrying about a crash and more about making incremental adjustments to the steering wheel and trajectory along the way.

For example, when developing a sustainable spending plan for a retiree, we can increase starting income or the starting ‘withdrawal rate’ from investment accounts if we commit to dynamic withdrawal rates.

Dynamic withdrawal rates involve small, incremental adjustments to monthly cash flow and spending throughout retirement as market returns fluctuate and evolve. This differs from the more common ‘static withdrawal rate’, which doesn’t allow for adjustment.

This ability to withdraw more money earlier in retirement is a big deal. And I wrote about it here:

Do Retirees Underspend in Retirement?

But to summarize, most retirement advice, or what passes for it, revolves around the 4% rule. That is, retirees can sustainability withdraw 4% of their beginning portfolio annually while increasing the annual withdrawal by the pace of inflation (i.e., roughly 3%).

A retiree with a $2,000,000 portfolio at retirement would withdraw $80,0000 in the first year. Then, adjusting for 3% inflation, the withdrawal in year two would increase to $82,400. This is a static withdrawal rate.

However, as I wrote in “Do Retirees Underspend in Retirement?” this number could be increased using a more modern retirement income framework. For example, at a 5% initial withdrawal rate, the retiree is withdrawing $100,000.

That’s $20,000 more annually!

What could you do with an extra $20,000?

What Would You Do with More Money in Retirement?

The answer may be to spend it.

And that’s great!

I love when people know exactly how they would allocate additional resources.

However, some are challenged by this question. In this scenario, there are a couple of questions to ask yourself.

• Are you restricting yourself for some reason?

• Do you have ideas or behaviors around money that don’t allow you to spend? Do these ideas serve you anymore?

• Do you experience guilt or shame around spending? Why? Does this serve you?

• If you allowed yourself to dream or indulge, what would you do? How would you behave?

Maybe you’ll uncover a place to spend that honors your values and purpose. For example, how about that new bike you have been drooling over? Or how about that bucket list vacation?

Photo by Lavi Perchik on Unsplash

But if not ‘Spend,’ Then How About ‘Give?’

Still, there are some, like my client Shelly, who would much rather pay it back and pay it forward.

Shelly is already loving her life. She has everything she needs. And she’d like to spread her abundance around whenever and however she can.

Her generosity is admirable. It lifts my spirits every time I talk to her.

The point is the money doesn’t have to be spent. It could also be gifted to family or given to charity.

In fact, if you don’t spend or give it, the odds are that you will leave a larger legacy when you pass. This assumes your investment portfolio is allocated appropriately and potential risks or other variables have been planned for, like longevity or long-term care.

But the sentiment holds true. Money compounds and grows. When you don’t have a strong sense of what your money is for, the problem compounds alongside the money.

Leaving a lasting legacy at your passing for family and cherished causes is a wonderful idea. Yet, I can’t help but think that giving should be pulled forward whenever possible.

Don’t you want to see the good your money can do?

Personally, I like seeing the effects of my giving in the here and now. I like knowing that that money flowed through me and positively impacts the world.

Shelly thinks like this, too. What do you think?

Some ideas you may consider for giving in the here and now:

• College Funds for Grandchildren

• Downpayments for adult children or other loved ones

• Daycare is a massive expense for young parents who are still just starting their careers. Could you pitch in?

• Faith Community

• Charitable causes

• Philanthropic goals

• Donor-advised funds