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Managing money in this so-called decumulation stage requires the same careful planning they used to create their nest egg.andreswd/iStockPhoto / Getty Images

As a financial planner, Warren MacKenzie applauds the efforts of his clients to save money for retirement. But he sees many struggling to spend the funds they so carefully put away once they’re retired.

Mr. MacKenzie tells the story of one Ontario-based retiree in his late 60s, with a net worth of $8-million, who has the cashier at McDonald’s ring through his breakfast order in separate transactions. That way, he can avoid paying the provincial sales tax, which doesn’t apply to restaurant meals under $4 – a saving of 56 cents on a total food bill of $7.

“It’s a force of habit, and his instinct is to be frugal; why throw away 56 cents?” says Mr. MacKenzie, head of financial planning at Optimize Wealth Management in Toronto.

He says the example is not uncommon among people who are used to being frugal, regardless of their net worth.

“People have learned a lot about how to accumulate wealth and how to manage wealth, but they have very little information about how to use wealth wisely to maximize happiness,” Mr. MacKenzie says.

Spending money can be difficult for many retirees, especially after decades of thrift. Managing in this so-called decumulation stage – especially amid rising inflation and a possible recession on the horizon – requires the same careful planning they used to create their nest egg.

“You have to nail down what you’re comfortable spending,” says Laura De Sousa, a wealth adviser in the Vancouver office of Nicola Wealth.

She believes it’s important before retirement and in the first couple of years following it for people to focus on their monthly “needs,” including expenses such as food, utilities and taxes. She recommends using an adviser who can help them determine how much money is needed to cover them, using a formula that accounts for inflation, market volatility and unforeseen expenses.

Next, people should consider their “wants,” such as travel, spoiling their grandchildren and giving to charity, and then determine what they might draw from their portfolio to cover those costs.

Continuing such reviews yearly, semi-annually or even quarterly ensures you’re on track and “helps to change the mindset” that you don’t have money to spend, Ms. De Sousa says. “It doesn’t happen overnight.”

Taking an extra trip, being a little more generous with holiday gifting or supporting a cause can all be possible with the right planning, Ms. De Sousa says.

“Most individuals will want to strike a really good balance between enjoying life during retirement without the risk of running out of money.” The alternative for many people is “deferring everything to end of life and passing things on via your estate,” she says

Ms. De Sousa goes through planning exercises with clients looking for a green light on purchases, or cash outlays that won’t negatively affect their overall financial plan.

“We give that encouragement that it is okay to enjoy their hard-earned savings that they’ve accumulated for 30-plus years,” she says.

Jack Courtney, vice-president of advanced financial planning at IG Wealth Management, based in Winnipeg, says financial planning tools can make the difference for retirees unsure about how much they should be spending. It’s critical to determine their surplus after working out absolutely everything they need to “keep the lights on” to the end of their lives.

“Knowledge is power; it’s all about gaining confidence and sleeping better,” he says. “Lots of people out there are okay but are concerned that they’re not okay.”

People wanting to leave their children an inheritance could opt for permanent life insurance that ensures they receive a set amount, Mr. Courtney suggests.

“Now you don’t have to worry about that anymore, so go and spend the rest,” he says.

Fear of spending money in retirement “is an attitudinal thing,” he says, especially with inflationary pressures in the news and a lifelong reluctance to eat into capital. “Because they’re really just worried about running out of money.”

Mr. McKenzie says retirees often don’t want to spend their assets because they are unclear on their long-term goals.

“They think that more is always better – but it isn’t,” he says. “They’re foregoing living a better lifestyle, drinking better wine, travelling first class if that’s what they want to do, and they’re not having the joy that can come from helping other people,” he says. “People naturally want to be safe and think they’re protecting themselves against every possible risk by having a bigger portfolio. But you should also know what you’re giving up for this feeling of safety.”

He says people should have a financial plan based on “the most conservative possible assumptions” like living to 100, needing health care, getting low investment returns and incurring higher-than-expected costs.

“Then, if they still have more money than they need, they will be free to spend it. They’ve got this,” he says.

One high-net-worth client has set aside money in a petty cash fund to pay for incidental expenses, so he doesn’t worry about shelling out for things like annoying parking tickets.

Leaving a larger estate is often the goal of scrimpers. Still, Mr. McKenzie feels that sizeable inheritances are not always better for heirs, and the pennies pinched through measures like the McDonald’s tax dodge don’t amount to much. He estimates that someone saving $1 per day would increase their estate by just $4,000 after a decade.

“With inflation, in 10 years’ time, the purchasing power of this additional sum might be $3,000.”

The man claims that by saving 56 cents on breakfast, he’s teaching his kids to use money wisely. But Mr. McKenzie suggests a better lesson would come from giving them, say, $10,000 to invest.

“Teach them how to manage it – and let them make some mistakes,” he adds.

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