SPENDING IN RETIREMENT: IT’S ALL ABOUT BALANCE
It may be time to treat yourself for all your hard work.
You’ve made it. Retirement. Throughout your life, you may have planned carefully to make sure you’re able to live the life you want. However, many retirees find it difficult to switch from a saving mindset to spending in retirement. While it’s important to be careful with your retirement savings, being too careful has its own downsides.
It’s impractical to deny yourself the senior lifestyle pleasures that you’re able to afford – such as a world cruise, a big-screen television or your grandkids’ college expenses. We’ve put together a few ways to find a balance between overspending and over-saving so you can live your retirement life to the fullest.
5 TIPS FOR SPENDING MONEY IN RETIREMENT
- Think about how you’re currently spending your days in retirement and analyze the kind of retirement lifestyle you want going forward. Then consider the financial requirements and the resources available to you. You need to balance discretionary costs with essential expenses such as housing, food, utilities, transportation, clothing, insurance and health care.
- Try it before you buy it. Looking to spend your retirement in a different area or state? Before you buy a house, rent a house for a year. See whether living there meets your expectations. It’s easy to buy, but selling is difficult, time-consuming and expensive – so take your time.
- Track elective costs and the impact of your new lifestyle on your spending. By recording your expenses in your first year of retirement, you can see how much money you’re really spending. You can then compare that to your income to see whether your spending in retirement is sustainable. You might discover that you can actually increase your spending rate!
- Plan for large retirement expenses such as home renovations and health care. Each of these can be six-figure costs. The projected lifetime cost of care for a healthy 65-year-old is $404,253 – and that doesn’t factor in long-term care costs, which could be as high as $100,000 a year.￼ Planning for these costs is essential. By doing so, you may discover that you can still spend more money in retirement than anticipated, enjoying yourself now.
- Decide how you feel about inheritance. How much of your current assets do you want to leave to your loved ones? Some retirees preserve their entire net worth for their family. Others arrange for their loved ones to get the remaining assets after their own priorities have been met during their lifetime. Your outlook affects how much money you’re willing and able to spend on yourself – and we can often offer strategies that even let you have it both ways.
THE SAVE-TO-SPEND SWITCH
One reason so many retirees scrimp is because they fear that retirement will cost them a lot of money. But research shows that people with at least $500,000 spend only 12% of their retirement funds in their first 20 years of retirement – suggesting that they could have spent far more and still enjoyed ample financial security.1
Retirees are often overly cautious because retirement is new to them. Uncertain of what lies ahead, yet knowing that large health care costs are likely, retirees are more apt to hoard than squander their retirement savings. But now’s the time to enjoy – within reason – the money you’ve worked so hard to earn. If you’re like many, this mindset might be difficult to implement. Here are a few small ways you can start to indulge in your expenses without breaking the bank.
LET LOOSE – JUST A LITTLE!
- Stop reading restaurant menus right to left – go ahead and order the Kobe beef if you like!
- Upgrade to a hotel room with a better view or choose a nicer hotel.
- Go to Broadway shows instead of movie theaters.
- Get new cars every four years instead of every 10.
- Upgrade to first class on a long flight.
However, if those things feel wasteful, don’t do them. If you like your car and it’s safe and reliable, there’s no reason to buy a new one. But if you’re saying to yourself, “this couch is uncomfortable,” replace it. Use your money to lead the life you want to live.
Worried you’ll still leave behind a significant amount of money, but don’t know what to do with it? You can always donate it to charity. Start by contacting your chosen charity’s planned giving department, where full-time professionals work with benefactors. Many of these departments can:
- Facilitate your donations
- Show you how to donate assets (such as stocks or real estate) to help reduce capital gains taxes while getting potential tax deductions for your donation
- Set up an annuity that gives you an income for life – and the charity of your choosing will get the balance upon your death
- Help ensure your will leaves money to the charity
- Help you create a charitable gift trust that protects the money for your benefit but eventually passes it to the charity
If you explore this option, you might discover that you gain more joy from supporting community organizations than spending money on luxury items for yourself. Or perhaps you’ll do a bit of both!
GET YOUR SPENDING IN RETIREMENT JUST RIGHT
You’ve worked hard for your retirement funds, and it’s common to worry whether they’ll last your entire life. However, there is a way to find a balance between overspending and denying yourself enjoyment. Talk to a financial planner today to discuss how you can find your own unique balance.
WATCH: THE SOCIAL AND EMOTIONAL IMPACT OF WORKING AND RETIREMENT
The co-hosts of Everyday Wealth are not employees or clients of EFE. They receive fixed cash compensation for acting as host, and have an incentive to endorse EFE and its planners.
The co-hosts of Everyday Wealth receive cash compensation for acting as hosts of the Everyday Wealth™ podcast and for related activities and therefore has an incentive to endorse Edelman Financial Engines and its planners. That compensation is a fixed sum paid on an annual basis; and reimbursement for certain expenses. The amount paid each year does not vary, is not based on show content or any results-dependent factors (e.g., popularity of the show).
1 RBC Wealth Management. (2021). The Real Cost of Health Care in Retirement. Royal Bank of Canada. Retrieved on December 22, 2021, from rbcwealthmanagement.com
2 Kiplinger. (2021). Spend Without Worry in Retirement. Retrieved on December 22, 2021, from kiplinger.com