Retirement Planning for Frugal Spenders

By Paul Ruedi

One of my sons recently met with a couple who wanted to know if they could retire “without having to live on ramen noodles.” Like many of our clients, the couple was frugal in their spending and had accumulated a healthy amount of savings over the years as a result. This couple had the sense they likely weren’t going to end up running out of money if they kept up their same frugal lifestyle. But naturally, they wondered how their assets could translate into multiple decades of retirement spending.

He made a plan for the couple, and just out of curiosity asked what they thought they could spend before presenting the results. The number turned out to be about half of what they could spend on the conservative side according to the plan. If this couple had not gone through the process of creating a financial plan, they likely would have spent half as much as they could have every year of retirement, and likely would have worried they were spending too much while they were doing so!

Though people often think the value of a financial plan is to prevent people from running out of money, another equally valuable aspect of financial planning is preventing a person or couple from spending too conservatively. This may not sound that valuable, especially if you are one of those people who refuses to believe you could spend any more money. But you can always find a way to use the potential extra spending in a way that benefits your life.

For example, I once worked with a couple that found out they could spend more than they had anticipated, but froze up when thinking about how to spend that extra amount. I had to ask, “You wouldn’t want to take your whole family, kids and grandkids, on a nice vacation every year?” The couple got big smiles on their faces. In their case the value of a financial plan was a very nice family vacation every year and a retirement full of memories that would not have been made without a nudge from a financial plan.

We often talk about the value of a financial plan as helping you live the best life possible. But this phrase is so ambiguous, I don’t think the true value of a financial plan really shines through them. In addition to helping retirees avoid over-spending, a financial plan can prevent under-spending. The value of that is different for everyone, but I think you owe it to yourself and your loved ones to find out what it could mean for you.

Paul Ruedi is the CEO of Ruedi Wealth Management in Champaign, Illinois.