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Saving Is Easy & Spending Is Hard - The Retiree’s Dilemma

If you make smart financial decisions during your earning years, you likely will have a nice nest egg when it comes time for retirement.

Save, save, save - from post-college until retirement. That is the mantra!

Forty (or so) years of savings towards retirement becomes a habit ingrained into your psyche.

Once a pre-retiree enters into the other side (retirement), the tough part becomes getting comfortable with actually spending the hard-earned savings.

This is the Retiree’s Dilemma!

Understanding The Behavioral Side

It is really hard to break habits or patterns that are deeply ingrained within us.

When it comes to money, personal finance, investing, and markets - emotions often get the best of us. In addition, it is very easy for us (humans) to not act in rational ways.

During the accumulation years, the focus is on earning income and saving towards retirement. Of course, there are other goals (first home, children's education, etc.). However, the BIG goal is typically retirement.

With such a focus on this and then a disciplined approach of nearly forty (or so) years of savings, it is very easy to see how there would be a mental roadblock from making such a 360 degrees switch (save to spend).

Finally, we know through Behavioral Finance, that losses are felt more (and worse) than gains. We think that is also the case with spending money vs. saving money. It hurts more to spend our hard-earned money than it does for us to “save” or “invest” that save money.

Tips To Overcome The Retiree’s Dilemma

For some pre-retirees that enter into retirement, there will absolutely be no issue in figuring out how to spend their retirement nest egg. No mental hurdle or roadblock there!

However, for many retirees, this can be quite the issue. Furthermore, if one spouse is more of a spender than the other, this can lead to a not-so-fun retirement journey.

Below are several tips to consider in order to overcome the Retiree’s Dilemma:

Create A Financial Plan

This may sound simple, but the more clarity that you have around the years leading up to retirement and the years during retirement, the easier it will be to spend your money. There may be other income sources that you have outside of your retirement nest egg. By seeing how these income sources play a part (and when), you can rest easy knowing it will be okay if you spend some of your retirement savings.

To go a step further, a financial planner can help you model out your retirement and project how much money you may have at the end of the rainbow, whether that is 90, 95 or 100 years old. We can model with conservative assumptions for investment returns, inflation, etc or do more complex monte carlo simulations by running thousands of trials to see your probability of success.

Mentally Prepare Well Before Retirement

If you know that you are going to have a tough time spending money during retirement, start getting yourself mentally prepared for this new adventure.

You can do this by understanding your financial plan. By understanding your financial plan and gaining clarity on your year-by-year cash flow, you will start to be more at ease with where money will be coming from.

In addition, you can also start visualizing more about what your retirement will look like. This exercise is important because you can really start to see yourself in that next chapter (or phase of life). Excitement can build up and once you actually get to retirement, there will be less hesitation and worry.

You Deserve It

Life is short.

Going through retirement without enjoying it would not be worth it in the end. Also, passing away with a pile of money and no checkboxes off of your bucket list would be no fun at all.

You deserve to spend the hard-earned money that you earned (and saved through delayed gratification). Enjoy it, afterall, you cannot take it with you to the after-life!

How We Can Help

Financial planning is not just about managing investment portfolios. More importantly, it is about having someone you trust to guide you when the unexpected occurs and to make sure your family has a trusted resource to rely on.

At Abel Financial Management, we are local, family-oriented, and truly independent financial planners with a mission to help you make smart decisions with your money. If you or someone you know faces decisions like these, we invite you to have a conversation with us.

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