Almost 1/3 of retirees deny themselves small splurges that they could easily afford. Here’s how to get more pleasure from your money:
We spend a lot of time warning retirees about overspending.
You’ve all heard of the 4% rule of thumb? That means you can pull 4% from your retirement savings each year and not run out of money over a typical 30-year long retirement span. You may even end up with plenty of money left in the bank.
But how about those people who spend too little?
We definitely have some clients who fit that description. We beg them to go spend some money. Hey, sometimes we even order them to go spend some money. But guess what? It usually doesn’t work.
It turns out that they are in good company. Last year, 28% of people 65 and older with at least $100,000 in savings pulled less than 1% from their accounts, says research firm Hearts & Wallets. That’s way under the 4% that they could safely withdraw, using the common rule of thumb.
“That made me a little bit sad,” said Laura Varas, co-founder of Hearts and Wallets.
Many retirees are afraid they’ll outlast their money if they withdraw too much of their savings. Others say they don’t need to withdraw retirement funds because:
- they are still working;
- they don’t need the money due to pension and Social Security income;
- their expenses are too low.
But spending money for special activities like traveling, dining out, or renovating an old, tired kitchen is part of what makes life fun and enjoyable.
Everyone deserves the occasional splurge.
“People want to have dessert occasionally,” said Varas. “That’s what the money is there for.”
So if you have a hard time spending money, here’s some suggestions:
Write out a list of “splurges” that you would spend money on if you had the means. Put a price tag on each item.
Ask your financial advisor to calculate how much you can safely spend per year. Then see how much you are really spending. If your spending is under the target amount, pick an item from your splurge list and go for it.
Recalculate your target and actual spending amounts each year so you can reassure yourself you’re still safely on track.
Think about what your heirs will do with the money you leave them. Often, you’ll realize that your kids, nephews and nieces, or whomever will inherit your money, needs it even less than you do.
As one of our clients put it – “Why pinch pennies and fly coach all your life just so your spoiled nephew can fly first class?”