Wealth Is Almost Always Framed as Something to Build, Far Less Often as Something to Spend

Written by Olivier Rident

In my view, summarising all the (sensible) views and stories on building wealth is not very complicated, prioritise tomorrow over today. In other words: live within your means, build a cushion, invest and be patient.

I appreciate these brief tips may not be very inspiring, possibly because they do not offer any shortcuts. Still, for those who subscribe to the idea that building wealth is a long-term project, the ‘how’ is comfortingly clear and usually measurable.

What gets little attention is when the time comes to prioritise today over tomorrow. This is possibly because many assume that this is the easy part (and I think we can all think of a guilt-free retirement gift we might allow ourselves). What is complex to navigate is the sudden, fundamental pivot from a mindset that has been shaped over decades, and for many, has become second nature. There is a reason toddlers prefer the process of building the toy fort than playing with it once complete. There are no instructions nor a toolkit to rely on once the thing is built. We can all tap into our imagination, but building our own spending philosophy to guide us is much more difficult.

To counter strong behavioural bias, as an advisor, my job is to help clients spend when the tap of professional activity is turned off, and it’s time to enjoy the nest egg. I appreciate that for some, that really is the easy part, but many find themselves caught off-guard.

For those who struggle, we should start by forgiving the fundamental discomfort of seeing the value of their balance sheet enter a negative trend as they turn into net spenders. For those who are fortunate enough to live only off income and never draw capital, the stagnating balance sheet can be just as painful. What I mean to say is that whatever the starting point, the shift is not always easy.

On a ‘measurable’ level, there are valid concerns:

• We don’t know how long we, or those we care about, are going to live.
• We are not often taught to budget for the next decade, or three.
• The last thing a natural (or learned) ‘accumulator’ wants is to overshoot spending in early retirement and end up having to rely on others in later life. The fact that expenses can rise steeply (and by definition, unpredictably) in the very last years of life does not help.

On an emotional level, we see certain patterns of thought:

• “Spending is not as rewarding as I had imagined. Earning my retirement was fun, having my retirement is not” (see toy analogy above).
• “I feel guilty about spending on things I don’t feel I need, or would otherwise not have spent as I was building towards retirement.”
• “I think I can afford it, but I am afraid of future unknowns.”
• “Rather than spend unnecessarily, I would prefer to give my children or beneficiaries a leg-up in life.” (Because late life is so hard to budget for, the size of gifts often comes down to ‘feel’ (or, tax planning!)).

Our job as advisors is to work out the numbers around this conversation, usually with a conservative set of scenarios, cash flow and contingency planning. In my experience, clients are most interested in this exercise while in the building phase of life, often to answer the question of when they can retire comfortably. The how is tomorrow’s question. By contrast, because those who are already retired don’t need to answer the above question, they do not lean so naturally into the cash flow exercise. I find this paradoxical, because cash flow forecasting is arguably most relevant in the ‘decumulation’ phase. In my estimation, the clients who are willing to interrogate their spending philosophy are those who get the most out of their wealth during retirement.

Once the worries of the decumulation phase are put into numbers, we find ourselves once again with a toolkit, and that comfort affords us the freedom to spend (and hopefully, enjoy!).

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