Affluent retirees hesitate to spend; advisers use cash-flow plans

Wealthy retirees often hold back from spending even when their portfolios can support higher withdrawals, financial advisers in the U.S. report. Planners use cash-flow analysis and clear budgets to map income, expenses and withdrawals over time and set spending guidelines.

Alicia Fuller, founder of Coastal 360 Capital Advisors in Naples, Florida, encounters clients with multimillion-dollar balances who still question ordinary purchases. Fuller recalled, “You can afford 100 of those vacations in a year,” and said many find it hard to shift from decades of saving to regular withdrawals.

Charles Failla, founder of Sovereign Financial Group in Stamford, Connecticut, noted that cash-flow projections often reveal room for more discretionary spending while preserving long-term security. Failla described a couple who planned a $150,000 world trip and only agreed to go after projections showed the withdrawal would not imperil their finances.

Cash-flow analysis lays out current income sources, expected expenses and planned withdrawals, then projects how those choices affect a portfolio over decades. Planners use the projections to recommend annual withdrawal amounts, adjust spending plans as returns vary, and set asset allocation and risk targets for near- and long-term needs.

Advisers report many retirees developed conservative spending habits during years of accumulation. Fuller recommends establishing a fixed annual withdrawal amount to cover everyday spending while keeping flexibility to spend more on large items such as travel or home renovations when investment performance allows.

Longer life expectancies increase the likelihood of unexpected costs, including health care and home repairs. Advisers say forward-looking models can include longevity assumptions, inflation and market volatility so clients can see how occasional large withdrawals affect their long-term outlook. The analysis also helps determine how much of a portfolio should be held in conservative investments or cash for short-term needs and how much can remain invested for growth.

Advisers report that caution is more common than overspending among affluent retirees. By converting portfolio totals into year-by-year budgets and scenarios, planners provide clients with a clearer picture of what they can afford and when they can take larger withdrawals.