How To Transition From Prudent Saver To Prudent Spender When You Retire
Many people who have been disciplined about saving for retirement tend to be hesitant to spend any of their savings once they retire. According to research firm Hearts & Wallets, in 2014, 28% of people 65 and older with at least $100,000 in savings withdrew less than 1% from their accounts.
There are many factors that cause some people to be overly frugal about spending in retirement. If this sounds like you, here are three things you need to do:
1. Pinpoint what's holding you back and face it head-on. If you are afraid to spend money because you want to be able to take care of yourself for as long as possible, consider getting long-term care insurance. If you want to send your grandchildren to college, it’s better and easier to set up a 529 plan where you contribute a certain amount each month and earnings can compound than it is to save up a huge lump sum in a savings account that is probably not paying a high rate of interest. If you don’t want to spend so you’ll have more to leave to your children when you die, consider the fact that it can be more frustrating to your children for you not to spend. They may prefer to see you spend money on things you need or want than to see you refrain from doing what you’d like or going without things you need when you have the money for them.
Whatever you are afraid of, name it. Then you can come up with a way to deal with it.
2. Remember that having money is great, but doing something rewarding with it is even better. Giving in to a fear of spending can rob you and those around of some very enriching life experiences. Find a charity that excites you, and support it with both your money and your time. Start crossing off some items on your bucket list, and take that trip to Antarctica! If you’re not that extreme, the Greek Islands are beautiful too. Discover a new hobby or start a new project; start a garden in your yard, get rid of the furniture you’ve been saying you are going to replace for years or take an art class.
You only get one shot at life, so live it!
3. Understand why you must change your mindset toward spending. You are now in the phase of your life for which you have been saving, and spending money is part of it. For some people, this can be uncharted territory. If you have been focused on saving for so long that spending makes you feel like you are losing control, then you need a framework for what responsible spending looks like. Have your financial advisor help you develop a plan for setting aside a certain amount each year for specific purposes, such as $5,000 per year for travel, $1,000 per year for charitable giving, etc.
However you decide to budget your spending, don’t feel guilty about it. Have some fun and reward yourself for being frugal when it mattered. You’ve been saving all your life for “later,” and later is now.