From the Vault: Spending In Retirement

From the Vault: Spending In Retirement

Today we go to the vault to bring back a very popular podcast: Spending in Retirement. This is a topic that never gets old. Financial Advisors Rob McClelland and Mike Connon look at the saving and spending habits of three different groups; The Frugal Foodies, The Prudent Families, and The Extravagant Travelers, and what makes each of them successful in attaining their ideal retirement goals. Which type are you?

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Rob (00:00):

Hello, this is Rob and Mike from The McClelland Financial Group of Assante Capital Management, and this is Think Smart with TMFG.

Rob (00:11):

Today on Think Smart with TMFG, Mike and I are going to be discussing spending in retirement. Mike, I read an interesting article that was discussing spending in retirement, and it was talking about differences between different types of retirees and expenses at different periods of retirement. And so the different types of retirees that they were talking about were, they gave them these interesting names, one were called the frugal foodies, those who are really, really careful with what they spend. The other group was called prudent families. And the third group were called the extravagant couples and transport lovers. So you got these three groups, and what they were looking at is what their spending behavior was just before retirement, and then at retirement, and then at age 80,

Mike (01:18):

Do I have to guess your group, Rob?

Rob (01:20):

You’re saying that I’m the prudent family?

Mike (01:24):

I don’t know.

Rob (01:27):

So you think I’m the extravagant couple and transport lover?

Mike (01:30):

That might be you.

Rob (01:32):

It’s interesting you say that. My wife points out that she was looking at our TripIt app just the other day and she couldn’t believe on how many different trips we had taken. And I remember her sitting me down one time, I had been away something like 10 times on these different little trips with friends and family and whatever and work, 10 times in a period of three months. And she had to sit me down and tell me I had to stop or our relationship wasn’t going to last. So let’s talk a little bit about our experience with these different groups. So my first question to you, Mike, is, do you think these groups exist?

Mike (02:13):


Rob (02:15):

So let’s talk about the first group, the frugal foodies. I don’t know why they get foodies, but they’re frugal clients.

Mike (02:24):

I can picture all these people in my mind. Afraid to spend a dime. Not that they don’t have the money, they do have the money, because generally people like this do have money. We always talked about, it’s not really what you earn, it’s what you save and you’re spending that decides your net worth. And they have a lot of money, but I have clients with quite large net worth, they’ll be afraid to spend 500 bucks on themselves

Rob (02:50):

And they wouldn’t.

Mike (02:51):

They wouldn’t. Not capable of it.

Rob (02:53):

So let’s go back to, what are they like at age 50? Are they spending more money at age 50? Because the research says they should be, but what have we found? Are they actually spending that much money?

Mike (03:07):


Rob (03:08):

So they’re pretty good at saving.

Mike (03:10):


Rob (03:11):

And do they ever fall off their savings plan?

Mike (03:13):

No. Savings a priority.

Rob (03:15):

And do they feel they’re missing out?

Mike (03:18):

No, they don’t understand the other people. It doesn’t make sense to them. In their mind, they see that as a waste of money and they would get no enjoyment. If they had $10 million in the account and they love cars and you said, “Do you want to buy a Porsche?” They couldn’t do it.

Rob (03:33):

So then we get them to retirement, whether it’s age 60 or 65 or somewhere in between, and what changes of that group? Because I think it’s easier if we look at one group at a time.

Mike (03:46):

That group generally doesn’t change much. Their habits stay pretty consistent, very low expenses. Generally this is the group that never even ask us for money. I’ve had groups that I’ve had for 20 years and they’ve never taken a dime out of their portfolio.

Rob (04:02):

I have the same clients. What I find is interesting is, and if we just look at the specifics, they may spend their RRIF income, or they may even take their RRIF income and put it into their tax free savings account. They never touch their open account.

Mike (04:19):

You know what the shocking amount? A lot of these clients don’t have kids either. So it’s not about saving for your kids or anything like that. It’s about just habits.

Rob (04:29):

So they get to 65. Do they start to travel?

Mike (04:32):

Not much.

Rob (04:33):

A little bit.

Mike (04:33):


Rob (04:34):

Maybe one trip a year for five years and that’s about it. And then the spending slows down, I believe even more, all the way to age 80. And by the time they’re age 80, they can survive pretty much on their Canada pension, their old age security if they still have it, and maybe a little bit extra.

Mike (04:57):

Yeah. Because remember, these people, because of how financially conservative they’ve been, they have no debt. They’ve always kept their ongoing expenses so they wouldn’t be high. They don’t drive extravagant cars so they’re not dealing with high repair bills. They’re not dealing with high insurance or anything like that. Their cost living is just very low.

Rob (05:13):

And it’s interesting, you and I because we see that they’ve got all this money and this low spending rate, I’m looking at a client that I’m meeting with later this week. They’re spending one and a half percent of their total assets, of their investment assets. They could be spending, because they’re in their seventies, they could be spending up to 5, almost 6% of their total. They’re spending one and a half. And that behavior doesn’t change. So let’s go to the next group, and this next group is, they’re prudent, but they do spend certainly more. Let’s call it the average client then in that group. So what’s their spending like at age 50 to 55?

Mike (05:58):

50, their spends reasonable. It’s still they’re saving, because they still need to save. So that’s still a requirement. So they’re still saving. Hopefully they’re debt free and they probably save about 20% of their income and the other will go toward their lifestyle. That’s typical, I think.

Rob (06:14):

Okay. And so they get to retirement at age 65. Do they start to travel?

Mike (06:21):


Rob (06:21):

Do they start overspending?

Mike (06:24):


Rob (06:25):

Well, it’s interesting you say that. I find there’s almost two groups in that category. There’s some that think they have a lot of money that do overspend.

Mike (06:33):

And some quick things. They might buy the new car and the new… Then they hit retirement and all of a sudden they’ve always wanted a BMW and they’ll get that BMW to go into retirement.

Rob (06:42):

Often if they have children, they started helping out their children and they would sacrifice for themselves to help out their children. So they would say, “You know what, we’re not going to travel for the next couple of years because we want to help our son or daughter or both our sons with down payment on a house.” By age 80, what’s their behavior like?

Mike (07:04):

Again, a lot of it’s forced because travel is one of those things that really gets cut back just by the nature of aging at age 80. And that usually becomes, I’d say that’s the one very variable expense we see in people’s retirements is the amount they spend on vacations and travel. And people always ask us, “How much should I spend?” We have clients spend a hundred thousand, we have clients spend $2000. There’s a wide range of it. And you can go see… Depends on the level of the trips you want to do. If you want to go to Africa and you want to go on a safari, if you want to go see Antarctica and trips like that, they’re going to be very, very expensive. And if you want to do that in a luxurious way, that can be tremendously expensive.

Rob (07:48):

It’s interesting you say that. I was thinking, I’ve got a client coming up in the next couple of weeks. They’re travel budget for the two of them, and they’re in their early seventies, is $14,000 a year. I have another individual in their seventies, their travel budget is $50,000 a year. They have roughly the same net worth. So everyone is so different and it’s why it’s really difficult, and why you need to seek out specific advice to your situation.

Mike (08:19):

Well, we’ve always seen this personally, too. You’ve been a big travel person. I’ve had trouble spending as much money on travel. I prefer to have tangible goods. You like experience and I like tangible. It’s different personalities.

Rob (08:32):

But you’re sort of in the middle. You’re not the frugal guy. You have just as many expenses, you just don’t think you do.

Mike (08:39):

Oh I got motorcycles and toys and yeah.

Rob (08:41):

You got all kinds of toys. You should go into Mike’s garage and see all his toys. Now half of them are in a period of being repaired or something like that, but there’s lots of toys in there.

Mike (08:53):

Yeah. My vacation’s spent in my garage fixing my stuff.

Rob (08:55):

And how many guitars do you currently own?

Mike (08:57):

I think 20 or so.

Rob (08:59):

20 guitars. Okay. So there’s a habit I don’t have. I don’t 20 sets of golf clubs, I can tell you that much.

Mike (09:06):


Rob (09:06):

So let’s talk about that third group. So these are the travelers, the spenders. So what’s life like for them in their fifties? Are they doing a good job at saving?

Mike (09:21):

Well, I think the key is once they hit retirement, that’s time when their dreams can come true because they have the time. Their whole problem has been getting time. They don’t think as much about money. It’s a time situation. So when you go and open up that retirement and say, now you don’t have to go to work every day. They now have time to go and make all these dreams come true.

Rob (09:40):

They really get to fulfill those dreams, right? They get to go be spending six months a year traveling. And so that group, as they’re in their fifties, they do a pretty good job of savings. Some of them may still have some debt and often some of them are higher income earners, but you’ve really got to force them to say, this is the money you’re making. You need to be putting a lot of this aside so you can continue doing what you want to do once you hit 60 or 65.

Mike (10:13):

Well, we talked about the difficulty in changing star ratings, right? And this is the thing we found is, particularly if you’re an executive in business, you got used to five star treatment. And a lot of it was on the company expenses before because a lot of these big companies do treat you very nicely. And when you go and start to do this on your own budget, out of your own pocket, it’s a real different thing. It’s no longer a giant conglomerate company now paying for your hotel room at $500, $600 a night. This is coming out of your savings.

Rob (10:43):

So as an advisor, what’s that like for you? You’ve got a client who is a high spender and they’re retiring. Not that anyone on our podcast cares about what’s going through our minds, but not even going through our minds. How do we feel emotionally about that as an advisor?

Mike (10:59):

Well, you feel like you’re sometimes on a wild horse and you’re trying to grab the rains and pull it in and you just keep on pulling back and the horse won’t slow down. So it’s a bit of a panic sometimes.

Rob (11:10):

And you try and dig your spurs in, but you don’t want to dig them in too deep because…

Mike (11:15):

This is what they want. You want people to be happy. You want your client to be happy and enjoy their life. And this is their dream coming through. You don’t want to be always a sour puss going in, you got to stop doing this. So it puts you in a bit, you feel good for what they’re doing, but you just want to make sure they’re careful enough where they can manage this.

Rob (11:33):

I think you’ve got to, what I always find is, it’s more important for me to do regular reviews, regular updates on the financial plan, regular reviews of income tax to make sure everything is going to be okay. And if it’s not, I need to tell them to slow down. Because you’re right, you do want them to fulfill those goals and dreams because you and I both know we’ve been at this long enough that it ends at some point, and you never know when it’s going to come. And I don’t mean you die, I just mean those trips stop. So if we look at this, spending in retirement, is a very interesting experience. Figure out what type of retiree you are and what type of spender you are. Which category are you in, and therefore what are some of the things that will work for you and won’t work for you? I think it’s important.

Rob (12:31):

This is Rob and Mike with Think Smart with TMFG from The McClelland Financial Group of Assante Capital Management, helping you to get to and through retirement.

Assante Capital Management (13:12):

You’ve been listening to The McClelland Financial Group of Assante Capital Management Limited. Assante Capital Management Limited is a member of the Canadian Investor Protection Fund and the Investment Industry Regulatory Organization of Canada. Insurance products and services are provided through Assante Estate And Insurance Services Incorporated. This material is provided for general information and is subject to change without notice. Every effort has been made to compile this material from reliable sources. However, no warranty can be made as to its accuracy or completeness. Before acting on any of the previous information. Please make sure to see a professional advisor for individual financial advice based on your personal circumstances. The opinions expressed are those of the authors and not necessarily those of Assante Estate Management Limited.

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