Part of it is the abrupt change in mindset from a diligent saver to a responsible spender. Of course, there are often concerns about running out of money, too. But more than being just a question of how much to spend, there is also the question of what to spend that money on.
So, let’s talk about what makes this transition so difficult and how to align your spending in retirement with your values. Hopefully, doing so will allow the enjoyment to come naturally.
The Abrupt Change in Mindset
As a wealth manager, I often speak with clients about saving for retirement. We all spend decades of our lives carefully saving and investing with the goal of living a comfortable life in retirement. For many people, though, the prospect of retirement often doesn’t feel real until it’s a few years away and they start to think about setting that retirement date.
I have been in the room with many people when the abstract plan for some day far in the future becomes a reality that is just around the corner.
Even though retirement planning involves discussions about where your income will come from in retirement, the reality of withdrawing from a nest egg you worked so hard to build can be a psychological hurdle.
It’s a lot to ask for someone to retrain their mindset overnight.
This is true even for clients who have done substantial financial planning to prepare for this exact moment. They’ve seen the financial projections, and they know how much they can comfortably spend.
Reframing the Transition
In my experience guiding clients through retirement transitions, I have seen four main phases.
The first is the working and saving phase. We plan for retirement and maximize savings, and retirement is a goal somewhere far off on the horizon.
The second phase is preparing for the transition to retirement. I’ve seen this shift begin anywhere from 2-5 years from someone’s planned retirement date.
People often experience anxiety during this phase. They may worry about optimizing their retirement income or wonder if they can trust their retirement projections. This is usually a very busy time when people review and tweak their financial plan regularly.
The third phase is adjusting to living in retirement. Once someone has executed their plans and started drawing against their savings for income, there is often a period when it feels uncomfortable. It takes time to trust the plan is working.
The last phase is settling into the new rhythm of life. Usually after a couple of years of seeing their plan in action, people get comfortable with the process of drawing against their savings.
With the discomfort of the transition behind them, people often begin to think about how best to use their wealth to maximize satisfaction or impact.
And this leads to new considerations…
What To Spend Money On
Perhaps the most fulfilling aspect of my job is that I get to be there for major milestones in the lives of my clients. Yes, we review investment performance and financial plans, but as they reach those milestones, we also talk about their experience of those events.
Recently I had a conversation with a client who had just retired about how retirement leads to a reframing of purpose.
Whether it’s conscious or not, our career can often be a major factor of our identity. Then, in a day, that part of our identity shrinks. It becomes who we were yesterday rather than who we are today.
During our careers, we often don’t find enough time for hobbies and other things we love. In retirement, we get the opportunity to discover (or rediscover) what matters to us.
Finding fulfillment in retirement means redefining yourself and intentionally building your social networks.
Once you retire, it takes purpose and effort to maintain existing social networks or build new ones, but it is well worth the energy.
Multiple studies have been done on the impact of social networks on quality of life in retirement.
These studies have found that increased social network involvement during the transition to retirement predicts more beneficial outcomesi. They also show that there is a positive relationship between life satisfaction and the size and closeness of one’s social network, and this is true across all countries in the studies.ii
Leaning into your social networks may also help you determine how you want to spend your time and money. Finding your “why” means that you can spend your wealth with intention, and that can bring enjoyment.
While each person’s priorities will be different, studies have shown that spending money on experiences, personal development, and giving to others can deepen relationships and lead to more lasting satisfaction.iii iv
The excitement of a new thing fades over time as it becomes commonplace. But remembering that vacation with your best friends, or that concert with your nephew, or that time you bought guitar strings for your niece and taught her how to string a guitar all pay dividends.
Those experiences deepen those relationships, and recalling those memories is joyful.
Some people may choose to help their grandchildren, nieces, and nephews with the cost of education. While leaving an inheritance is an admirable goal, getting to see the impact of your wealth during your lifetime is a powerful experience.
Financially Sound Spending
Of course, it’s important to consider the financial aspect of giving gifts and paying for experiences.
For one, you want to ensure that you don’t spend beyond your means. That’s where a sound financial plan comes in. But if you know the expense is within the bounds of your financial plan, then these expenses may be well worth it.
When it comes to giving gifts, people often worry about the gift tax. While that is a valid concern, it may not be a reason to forego giving that gift. Here’s why…
In 2025, an individual can give a gift of up to $19,000 without needing to report a taxable gift. This is called the Gift Tax Annual Exclusion Amount. Married couples can combine their annual gift limits and give up to $38,000 to a single individual.
If you do exceed the annual limit, there still isn’t a current tax implication for you or the gift recipient. Instead, you need to file IRS Form 709 to report a taxable gift. Any amount above the annual limit is then subtracted from your Lifetime Estate and Gift Tax Exclusion Amount.
In 2025, the Lifetime Exclusion Amount is $13,990,000 per individual, double that for married couples.
Let’s say you give a gift of $100,000 to someone in 2025 and you aren’t combining annual limits with a spouse. Since this is above the $19,000 limit, you must report a taxable gift which will reduce your Lifetime Exclusion Amount by $81,000 dollars. If you haven’t made a reportable gift before, you will still have a Lifetime Exclusion of $13,909,000.
Both the Annual and Lifetime Exclusion Amounts are inflation-adjusted, so we can expect these limits to increase over time.
So, when does the tax come due?
Well, the Gift Tax and Estate Tax are tied together. Taxes are only due if the value of an estate exceeds the Lifetime Exclusion Amount less any Lifetime Reportable Gifts. If this happens, then the estate is responsible for the estate tax.
The bottom line is that people who expect to leave a sizeable inheritance should plan with regards to lifetime gifts. However, many Americans may not have their estates subject to the Estate Tax.
Additionally, you can give gifts of cash with the peace of mind that you aren’t creating a tax burden for the gift recipient.
Now, if you are planning to gift property, you should speak with your accountant or financial planner to understand the rules regarding tax basis. If your goal is to gift property, like a house, in the most tax efficient way, then a lifetime gift may not be the best option.
Conclusion
Let’s go back to my original question. Why can it feel so difficult to finally enjoy spending your hard earned wealth?
It can be scary to make that transition from putting money in your nest egg to taking money out.
You may find that the things you dreamed of spending time and money on in retirement aren’t the things you care about once you get there.
There can also be complicated rules that might make you hesitate to do something like giving a gift.
But if you do the work to create a plan and devote the energy to finding your passion, that may establish a foundation to align your spending with your values.
This is a personal journey that will be as unique as you are. I hope that spending your wealth can be a joyful experience. If you have questions along the way, Howe & Rusling is here to help.
Disclosures: The information contained herein is provided for educational and informational purposes only and should not be construed as personalized financial, tax, or legal advice. The views expressed are those of the author and do not necessarily reflect the views of Howe & Rusling, Inc. or any of its affiliates. Any opinions or forward-looking statements are based on current assumptions and are subject to change without notice. Certain statements in this material may be based on the author’s observations or experiences working with clients. These references are illustrative in nature, are not intended to depict actual clients, and should not be construed as testimonials or endorsements. No compensation was provided for any statements referenced. Financial planning projections and retirement income analyses are hypothetical in nature, are not guarantees of future results, and rely on assumptions that may not materialize. Actual future outcomes may differ significantly. Past performance is not indicative of future results. Discussions of tax concepts, including but not limited to the federal Gift Tax Annual Exclusion Amount, Lifetime Estate and Gift Tax Exclusion Amount, and IRS filing requirements, are general in nature and are based on information believed to be accurate for the 2025 tax year. These figures are subject to change due to IRS adjustments or legislative updates. Howe & Rusling, Inc. does not provide tax or legal advice. You should consult with your qualified tax professional or attorney regarding your specific circumstances before implementing any strategy involving gifting, property transfers, or estate planning. Any references to studies, research, or third-party findings regarding retirement behaviors, social networks, or life satisfaction are provided for context only. Howe & Rusling, Inc. has not independently verified the accuracy or methodology of such third-party information and does not endorse any specific conclusions. Investing involves risk, including the potential loss of principal. No investment strategy or financial planning approach can guarantee success or ensure that retirement or gifting objectives will be achieved. Howe & Rusling, Inc. (“H&R”) is an SEC-registered investment adviser. Registration does not imply a certain level of skill or training.
