We all have that one expensive bottle of wine, that box of artisan chocolates, or that luxury spa gift certificate we’re saving for the perfect occasion.
And what usually happens? The wine collects dust, the chocolate goes stale, and the certificate expires.
Researchers at Cornell University call this the “precious cargo” effect. We become so afraid of consuming something valuable too early or wasting it on an ordinary Tuesday that we often end up never using it at all.
As it turns out, we do the exact same thing with our life savings.
For decades, the financial industry hammers into our heads exactly how to save, invest, and max out our workplace accounts. But when it’s time to stop working, they leave us completely blind. No one teaches us how to actually decumulate. Because of this massive information gap, our portfolios turn into precious cargo. We become terrified to touch them. In fact, a recent Morningstar study showed that 20 years into retirement, many retirees have only spent down 12% of their principal.
This week on the podcast, I sat down with Jean Chatzky to figure out how to break this cycle. You likely know Jean as the award-winning personal finance author, founder of Her Money, and the former financial editor for NBC’s Today Show.
Her new book, The Forever Paycheck, tackles the psychology of the decumulation dilemma head-on. As Jean explains it, under-spending isn’t a math problem—it’s a brain problem. When you have to manually liquidate volatile stock market shares every few months to fund your life, every withdrawal feels like a loss.
Her solution is to short-circuit that fear by replacing it with a “forever paycheck”—a regular, anticipated deposit that lands in your checking account automatically.
We talked through the exact mechanics of how to build this, and Jean surprised me. After years in traditional finance media where annuities were largely treated as a scam—she admits she once shut down her own mother’s advisor for recommending one—the data forced her to completely change her mind. She breaks down why academic economists are essentially the “Swifties” of simple immediate annuities, and how converting just one-third of your nest egg into a guaranteed income stream can free up the psychological bandwidth you need to actually enjoy the other two-thirds.
We also get into the weeds on the “lopsided smile” of retirement spending, the uncomfortable reality that over 90% of US homes aren’t physically suitable for aging in place, and how tools like reverse mortgages are being standardized to help.
In the after-show, we discuss a concept I call “escape velocity.” I’ve realized lately that the primary purpose of a massive net worth isn’t actually to fund your retirement—most of us will never spend it all anyway. The real purpose of a massive net worth is simply to give you the guts to leave a job you dislike. Once you make that leap, behavioral strategies like Jean’s forever paycheck are what actually grant you the peace of mind to enjoy the life you’ve built.
It’s a fantastic conversation about the shift from the math of money to the behavior of money.
Creating a retirement paycheck is a great strategy that takes emotion out of play. It's a standard income that you don't need to think about. We are more likely to be successful at reaching our goals if we cut down on decision making and develop habits. By cutting down on thinking about your budget every month you're going to increase satisfaction and be able to plan better. Creating a fuxed monthly income stream is going to give you confidence and control in the future. It cuts out the decision making fatigue and allows a monthly budget to be made just like they were comfortable with their whole lives.
I'm confused with the fixation of spending down the original principal for two reasons. 1) Michael Kitces article 'Why Most Retirees Will Never Draw Down Their Retirement Portfolio' suggests that for the first half of a 30 year retirement, you actually *need* the portfolio to grow bigger than the original principal to cover the inflation-adjusted spending later in life. This means that retirees should expect their portfolio to be intact 17 years into retirement as part of the normal course of decumulation and 2) even if you have the same number of dollars, they buy less due to inflation so even if you maintain the original principal amount, you have less and less buying power. We humans struggle to comprehend the power of compounding, but we also to struggle to comprehend the power of inflation.