“Age is an issue of mind over matter. If you don’t mind, it doesn’t matter.” –Mark Twain

Bringing Mark Twain’s positive perspective to our retirement years can make all the difference in helping make these years truly “golden.” That said, challenges abound as we encounter significant increases in free time to fill, more reliance on social interaction, greater time with our partner (or unfortunately without for those who may outlive the other) and predictable physical and mental decline.[1]

While Mark Twain will be the first to admit that money doesn’t buy happiness, it can sure make the ride more enjoyable. Besides that positive attitude, understanding what may lie ahead financially can help us better prepare for success.  The good news is we are not alone, as about 75 million baby boomers have begun reaching retirement age.[2]

New research by David Blanchett, head of retirement research at Morningstar[3], suggests retirement spending habits can at different stages mimic that of a smile pattern.  A “retirement spending smile” effect is noted by Blanchett, whereby changes in real consumption tend to be greater in both early and late retirement. Numerous planning challenges can arise at each.  Depending on how well these are handled, retirement success can be facilitated or impeded because in the long run, creating a successful retirement is as much about realistic investment planning as it is about bringing a positive attitude.  A few ideas:

  1. Early Years

Peak activity level as retirees now have time and health to fulfill a lifetime of dreams pondered as we strive to enjoy life to its fullest. The ancillary burst of expenditures may be best handled by setting aside larger portions in cash to help meet these higher expenses.  Doing so can help reduce the uncertainty (called “sequence risk”) of potentially having to sell investments during a market downturn.

2.  Mid Years

By the mid-70’s, some novelty has worn off as retirement routine sets in. The expected slowdown occurs as our bodies and minds seem less able to handle vigorous activities. During Blanchett’s “bottom peak of the smile,” expenditures often normalize. A steady income stream becomes increasingly important as life and expenses become more predictable.

3.  Later Years

Our energy levels wane as we become more dependent on others. Resulting increase in medical costs can create the final peak of the smile especially if long-term health care begins. Here we might consider risk transference strategies such as purchasing a long-term care policy to help reduce the sudden outflow of cash toward these expenses.

Our simple yet empowering planning approach to retirement cash flow management can help clients gain this financial confidence.   As a starting point, we encourage clients to first take inventory of their expected retirement inflows.  These usually include social security, pension (for those fortunate few), part-time employment, and/or rental income.

We then work to estimate annual expenses, knowing as Blanchett points out, these will likely fluctuate over time. To that, we often find it taking 18-24 months following retirement before we can get a consistent spending pattern and lifestyle. That said, the above Consumer Expenditure Survey[4] for those over 65 years of age may provide a helpful reference.

Taking the difference between in and out flow (annual expenses), we can then identify the “gap,” which may reveal a shortfall that can be filled from our client’s investment portfolio. Here we use the analogy (see next page) of a “spigot,” a mechanism that allows us to “fill our retirement cup” as much as is needed each year with flexibility to close it off when our cup is filled.


  • Planning Annual Withdrawals is Similar to Turning on a Spigot
  • Fill Cup Only With What is Needed
  • May Take More in Low Tax Years or if Rate Increase Expected

Research shows that a happier retirement can be based upon the type of income being received. Specifically, those retirees for whom income is generated from anticipated, steady sources often report a more enjoyable retirement.  Retirees can then spend less time preoccupied with cash flow and spend more time enjoying family and activities.

The bottom line is that having a more defined picture of both your spending habits as well as your physical and emotional habits can help you enjoy a more successful retirement. Spend your time with friends and family, don’t be afraid to take on new hobbies, and embrace all the new journeys of your newly found free time. After all, we work so hard to get here so let’s make the best of it. 

This material is being provided for information purposes only and is not a complete description, nor is it a recommendation. Wells Fargo Financial Network LLC (WFAFN) does not provide tax or legal advice. We strongly recommend an advanced tax and estate planning expert be contacted for further information. Any opinions are those of Mitchell Kauffman and not necessarily those of Wells Fargo Advisors Financial Network. The information has been obtained from sources considered to be reliable, but Wells Fargo Financial Network does not guarantee that the foregoing material is accurate or complete. Prior to making a financial decision, please consult with your financial advisor about your individual situation.

Mitchell Kauffman provides wealth management services to corporate executives, business owners, professionals, independent women, and the affluent. He is one of only five financial advisors from across the U.S. named to Research magazine’s prestigious Advisor Hall of Fame in 2010, and among a select list of 100 over the past 20 years.

Inductees into the Advisor Hall of Fame have passed a rigorous screening, served a minimum of 15 years in the industry, acquired substantial assets under management, demonstrate superior client service, and have earned recognition from their peers and the broader community.

Kauffman’s articles have appeared in national publications, and he is often quoted in the media. He is an Instructor of Financial Planning and Investment Management at the University of California at Santa Barbara.

For more information, visit www.kwmwealthadvisory.com or call (866) 467-8981.  Investment products and services are offered through Wells Fargo Advisors Financial Network LLC (WFAFN), Member SIPC.  KWM Wealth Advisory is a separate entity from WFAFN.

[1] “What Makes a Successful Retirement?” Michael Finke, Research Magazine Feb. 2014 pgs. 15-17

[2] “Just How Many Baby Boomers Are There?”, John Hagga, Population Reference Bureau http://www.prb.org/Publications/Articles/2002/JustHowManyBabyBoomersAreThere.aspx

3 “Optimal Portfolio Allocations with GMBW Annuities


4 Consumer Expenditure Survey, U.S. Bureau of Labor Statistics, September 2012

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