There’s a common problem that hits many people in retirement.
After years of saving in order to achieve their retirement dreams, many retirees have a hard time breaking old habits. This seems to be particularly true of those who have been diligent savers throughout their working years.
Many retirees spend too little money.
As I learned reading this article, there’s actually a name for the problem: Chrometophobia. It’s a difficult problem to solve, but today we’re going to look at how to encourage folks to exercise their freedom to spend in retirement. You’ve worked your whole life to reach this point, don’t let fear and anxiety crash your retirement party. My wife and I have been intentional in trying to learn how to spend in retirement without worry, and I’m hoping some of the lessons we’ve learned will help those of you who are also trying to learn to spend in retirement, like Brian who recently sent me this comment in an email:
“Amazing to me that trying to sensibly increase the spend rate actually seems like work! We are going to make a concerted effort to spend more this year with most of it coming from travel.” Brian – a reader of this blog
This post is for all of you “Brian’s” out there. My thoughts and lessons on how to learn to spend in retirement. It’s time to enjoy life, while we still can.Many retirees spend less than they could. Don't let fear and anxiety impact the best years of your life, apply these 5 steps to learn to spend. Click To Tweet
I have a persistent memory from childhood.
I was a young man, still in elementary school. Between some odd jobs and my weekly allowance, my savings were starting to grow. I remember emptying my piggy bank and counting how much change I had saved. I’d carefully stack the coins into $1 increments and build the piles on a card table in my room. Once they were all stacked, I’d count them all up.
I enjoyed watching the numbers grow.
From the age of 10 until my retirement at age 55, that habit became deeply ingrained. Automated savings, careful spending, consistent tracking of our annual net worth. Decade after decade. Starting with nothing, I was successful in achieving a dream. I was able to retire early. The diligence has now been rewarded. I realize many never enjoy that luxury and I consider myself blessed, but I also realize the fact that my situation today is a result of a decades-long commitment to make savings a priority.
My heart goes out to those who face a life of poverty, and I realize the topic of today’s post could cause some animosity among those who are struggling. I’m sorry for your situation, and I respect how these words could make you feel. I also ask that you recognize the decades of sacrifice I’ve made to arrive at my current situation. I suspect many readers can relate and have made saving a priority over the decades. We each have our own journey, and today’s post is focused on those who have a deeply engrained “savings habit” they’re now struggling to break. If that doesn’t apply to you, focus on my other posts that can help you, such as “How To Retire in 5 Simple Steps.”
What’s Your Why?
It’s appropriate, at times, to ask “Why?”
This is one of those times, and it’s an important question to ask before we get into the 5 lessons on learning how to spend in retirement. Why did it matter if those numbers were growing when I was younger? For most of my working life, the answer was, of course, “So I can retire someday.”
Now that I’ve retired, there’s value in revisiting “The Why.” It’s changed, and it’s important to recognize that fact.
My goal is no longer to “build a bigger pile.” I’ve achieved the goal, I’ve won the game. It’s time to change the strategy for my “second half.” As I think about my “Why” for my retirement, I’d summarize it as follows:
- My goal is not to die with a big number.
- At the same time, I want to ensure we don’t run out of money before we die.
- My goal is to enjoy life, especially the limited number of active years we have remaining.
- I’ve broken the chains that once tied me to a desk. It’s time to enjoy the freedom I’ve earned.
- I also want to become more generous, to leave a legacy of helping others.
The seed for today’s article was planted when I read a recent article in which I was featured. The article from Vested Magazine titled Striking A Balance on Spending contained the following quote.
As I read those words, I realized my “Why” has changed. The article helped solidify in my mind the importance of that change and led me to write the words you’re now reading. My dedication to the new “Why” was reinforced when I lost my Dad last month. He lived a good life and made a big impact on me. I realize our time on earth is limited, and it’s important to identify our priorities and live life accordingly. I hope my Dad would be proud.
Both factors led to my decision to summarize the changes we’ve made to support our new “Why” in the hopes they can help others who face a similar situation.
What’s your “Why?” It’s an important question to answer, and I encourage you to think about it. More importantly, I encourage you to be intentional in aligning the steps you’re taking with the goals you’ve identified. If you, like me, have decided your “Why” is no longer focused on increasing your net worth, what steps are you taking to align your activities with your new priorities?
5 Steps to Learn To Spend In Retirement
As I reflect back on the changes we’ve made to support our decision to spend in retirement without worry, the following 5 steps come to mind. Pick a few that resonate with you and find ways to apply them in your life. Before we cover those, I’d like to share the following quote I read in Retirement Starts Today weekly email – it’s a relevant reminder of the need to change your skill-set to learn to spend in retirement:
“The skill-set required to create a nest egg is the exact opposite of the one you need to spend it.”
– David Blanchett, head of retirement research at the PGIM unit of Prudential Financial.
1) Make An Intentional Decision To Spend
In the month I retired, I wrote: “It’s Time To Live Like No One Else”. Looking back, I realize that post was my “line in the sand,” the point at which my wife and I decided we wanted to change our “Why” and focus on maximizing our enjoyment in our retirement years. We wanted to break our spendthrift habits and learn how to spend in retirement without worry. The article outlines some of the key steps we took to reflect our new priorities, summarized below:
- We recognized we no longer needed to save, we were free to spend.
- We automated our spending as a means of breaking our thrifty habits.
- We built a “maintenance reserve” to defend against surprise expenses.
- We intentionally changed our mentality from “Saver” to “Spender.”
In line with this “spending mindset”, I’ll share a bit of advice I left as a comment on my friend Jim’s recent post on RouteToRetire, “Stop Counting Pennies:”
“Jim, after years of aggressively pursuing FIRE, it’s only natural to count the pennies. Here’s one for you: challenge yourself to start intentionally buying the more expensive option. LOOK for that peanut butter that costs $2 more. ORDER that meal choice that’s $1.50 more expensive. Smile every time you do it. It’s time to break the habit. Remind yourself, every time, that “we’re fine,” and enjoy those small luxuries along the way. It worked for me, maybe it’ll work for you.”
One additional thought: if you happen to earn any unexpected income in retirement, recognize that you’re 100% free to spend 100% of that money. It wasn’t in your original numbers when you made the decision to retire, it’s not included in your safe withdrawal rate, and there’s no longer a reason to save. Test yourself, and see if you can spend any “extra” money without guilt.
2) Develop A System To Keep You On Track
It would be irresponsible to spend recklessly in retirement. At the same time, spending less than we can safely spend in retirement could lead us to live a life of unnecessary sacrifice. How do you balance those two extremes?
In our case, we rely on our Bucket Strategy and the automatic monthly paycheck we establish every January during our Annual Financial Review. By developing a system to help us easily determine how much we can safely spend in retirement, we can reduce our worry when we’re actually spending money within those previously defined limits.
In our case, we simply transfer a fixed amount every month from our money market fund to our checking account. If the checking account continues to grow for several months, we know we can increase our spending. If it starts to dip, we know to cut back. It doesn’t get much easier than that.
3) Ensure Your Money Will Last Your Lifetime
The biggest fear holding retirees back from spending money is the concern that they’ll outlive their money, become a burden to their children, or face unexpected spending shocks later in life. Valid concerns, all, but not a reason to sacrifice the potential experiences you’d like to pursue in your retirement.
I’ve written extensively on strategies you can follow to ensure your money will last, so rather than rehash that content I’ve provided several links below for those who would like to dig deeper on this one:
- Seven Strategies To Make Your Money Last Through Retirement
- 10 Steps To Make Sure You Have Enough Money To Retire
- How Much Can You Safely Spend In Retirement
Determine how much you can safely spend and build a system to keep you on track. Once you’ve completed those two tasks, you know you can spend without worry. At that point, it’s just a matter of breaking a deeply ingrained habit.
4) Build A New Dream
Speaking from personal experience, it’s easier to spend in retirement if you know it’s supporting a retirement dream. As I wrote in Building A Dream, my wife and I had a dream of building a “Purpose Full Workshop” on our property, both to support her growing charity (Freedom For Fido) and to provide a writing studio for my work on this blog. The dream was 100% driven by the Purposes we were both pursuing in retirement, and we’ve never regretted spending the money required to build the Treehouse Writing Studio where I’m currently writing these words. If you’d like a look inside, feel free to take A Tour of my Woodworking Shop.
As I mentioned in my “additional thought” on #1 above, if you have some unexpected income in retirement, challenge yourself to spend it. That’s exactly what drove our decision to proceed with the Purpose Full Workshop, and it’s created more fulfillment in our retirement than we could have ever achieved by simply saving that extra money.
If your dream, like Brian’s, is to increase your travel, find a way to take an extra trip. Buy a first-class ticket instead of flying coach. Buy an RV, or rent one for a few weeks.
Spend your money on retirement dreams. If you’re struggling with that one, consider giving it away. This leads us to #5…
5) If You Don’t Want To Spend It, Give It Away
I’ve heard from numerous readers who have stated “But we don’t need or want to spend any more money, we’re content with what we have.” That’s an enviable position to be in, and I applaud those who have tackled the challenge of being content. (Ah, contentment, the topic of my very first post!)
Regardless, being content is not necessarily an excuse to spend less than you safely can in retirement. If you fall into the “contentment camp”, I challenge you to find a way to give more money away. There’s a certain satisfaction that results from being generous that’s hard to explain.
My Dad was the model of generosity. He’d often pay for people’s meals at restaurants, provide low-cost rent to folks in need in a second home he owned, or help people out who he knew were struggling. His Will stated that 25% of his assets were to go to charity at his death, and it was a perfect statement of who he was as a man. I suspect he had been giving away 25% of his retirement income for years.
I’m trying to learn from my Dad and increase our giving. When the COVID restrictions started to lift, we routinely tipped 100% on our restaurant bill for the first few months to help out the employees who had been hard-hit during the shutdowns. When we saw the need in Ukraine, we decided to give a “stretch donation” since we had a bit of extra money in our checking account. When our niece became a missionary, we strongly supported her with an automatic monthly donation that will continue for as long as she has the need.
There are a lot of folks with serious needs. Are you struggling with finding a way to spend in retirement? Consider spending more money on those who can use it the most. From experience, the statement that “the gift goes to the giver” is accurate. Give some away and see for yourself.
You won’t regret it.
If you’ve not yet retired, you’re likely puzzled over the reality that many folks struggle to spend what they can safely spend in retirement. It is, however, a well-documented reality that many retirees face. If you’re already retired and facing this reality in your own life, it’s my hope that the lessons we’ve learned on our journey can help you on yours.
You’ve sacrificed for years to cross The Starting Line.
You’ve lived like no one else.
It’s time to ask yourself why.
Your Turn: Are you spending what you can safely spend in retirement? If you’re spending less, what’s holding you back? If you’ve been successful in transitioning from a “Saver” to a “Spender”, what tips can you provide to other readers who may be struggling with the issue? Let’s chat…