I spend a lot of time telling people to automate their savings, keep costs low, invest in index funds, and stay the course. But you know what might be even harder than saving?
Expenditure.
I see this all the time with retirees. According to the calculations, they can easily spend $120,000 per year, but their current expenses are around $60,000. They know they are doing well. They see the graphs. They rely on the projections. Still, the idea of doubling down on their lifestyle makes them deeply uncomfortable.
I get it. If you’ve been living below your means for the past thirty or forty years, making the transition from saver to spender can be incredibly difficult. It feels risky. It feels unknown.
Moreover, it’s not like you’re suddenly going to double your lifestyle overnight. To go from Best Western to butler service at the Four Seasons would require becoming a completely different person. That does not happen on day 1 of your pension.
But here’s the thing. You’ve been saving for this moment all your life. If you can’t bring yourself to spend your money, someone else will. Your beneficiaries. The government. And that money could come at an inopportune time for your children (they may already be retired and financially secure), or for your estate when the government takes a giant bite out of your still-too-large RRIF account.
So how do you give yourself the permission and confidence to spend (or spend) more now, while actually enjoying it?
The money dial approach
One concept I like is money dials. These are the spending categories that you will enjoy the most. Travel, home comfort, fitness, dining out, convenience, generosity. Everyone has a different mix.
Any retiree can turn up one or two of those dials and significantly increase his or her happiness without feeling wasteful.
Related: Why we stopped saving so much and started living
Start traveling. Many retirees place that dial at the top:
- If you normally stay in a budget hotel, try a stylish boutique or a luxury resort. You might love it. And if it’s not your thing, now you know.
- If you always fly in the cheapest economy seat, try premium economy or business class for comfort.
- If you normally go for one week, extend it to three. If you make two trips a year, make it four.
And consider combining joy with generosity. Rent a beach house or villa big enough for your adult children and grandchildren. They get a vacation they may not be able to afford. You get the family time. It’s okay if it feels like a forced family reunion. You paid for it.
Research shows that you are spending too little money
Morningstar researcher David Blanchett examined how spending actually changes during retirement. His work shows that inflation-adjusted spending typically falls for the first ten to twenty years, before rising again much later in life due to healthcare costs (note that this is US research). It creates what he calls a smile on retirement spending.
In layman’s terms, most retirees spend less than they could, just when they are healthiest and can get the most out of their money.
Behavioral economists point to identity as an important factor. You’ve considered yourself a saver for decades. Spending more feels wrong, even if the spreadsheets prove it’s safe. This saver mentality is powerful and it will take deliberate behavioral changes to loosen its grip.
Spend joyfully and with purpose
There are many high-impact ways to increase spending while improving your life and the lives of others:
- Help your children build wealth early. Fund a First Home Savings Account (FHSA) entirely for them ($8,000 per year x 5 years). Help with TFSA contributions. A gift of $10,000, $25,000 or $100,000 as a down payment can be life-changing at their age and stage of life.
- Support your grandchildren. Invest $2,500 per year in their RESPs. Take that burden off your children’s shoulders.
- Take your donation to the next level. Increase that favorite charity donation from $100 to $1,000 or more (turn the dial up). Create a scholarship fund at your local college or university. A gift of $50,000 creates a $2,000 annual grant in perpetuity. Talk about leaving a legacy.
- Become the 100% tipper for local baristas and servers.
Charitable Giving Pro Tip: If you donate appreciated investments from a taxable account directly to charity, you avoid capital gains taxes entirely and receive a gift tax credit for the full value. The charity gets more. The CRA gets less. You feel great.
Three ways to turn up the Joy Dial
- Upgrade one thing. Take something you already like and increase the quality.
- Spend to create memories. Bring family or friends along for the ride.
- Give while you live. Generosity brings more joy when you can see its impact.
Let your imagination indulge a little
I have had clients buy a sailboat and learn to navigate the ocean. Others bought an Airstream trailer and hit the road for months. One couple now spends every winter just steps from the beach in Mexico. The money was always there. They just needed someone to show them that it was okay to enjoy it.
Your only limitation is your imagination.
The bottom line
Retirement shouldn’t feel like a financial waiting room where the goal is to die with the largest account balance. You have permission to spend more. You’ve earned that permission through a lifetime of making smart decisions.
Turn up one knob. Try it for a year. If you don’t like it, put it back and try something else.
But don’t wait until it’s too late.
You can afford to enjoy the ride.
#Turn #dial #enjoy #spending #retirement