How to spend savings confidently, avoid an overly frugal retirement
According to the Employee Benefit Research Institute’s 2022 Spending in Retirement Survey, over 40% of retirees plan to only minimally spend down their assets, if at all. Surprisingly, 14% even aim to increase their savings during retirement.
Meanwhile, other EBRI research suggested that retirees’ reluctance to spend is likely caused by the uncertainties of retirement — the unknown duration of life, the longevity of assets, health prospects and market performance.
Certainly, there’s nothing wrong with being cautious with your hard-earned savings. However, excessive caution poses its own risk: a life not fully lived, where the primary beneficiary of your savings becomes the adviser paid to manage them.
Here are three ways to spend savings confidently.
Accept and embrace uncertainty
Psychologists suggest the power uncertainty has over us is of our own making. We can limit its negative impact by accepting and embracing it rather than worrying about it. Understand that no plan can completely eliminate uncertainty; it’s an inherent part of life.
The key is to focus on what is within your control. This includes adhering to a sensible withdrawal rate and maintaining a healthy lifestyle, which can significantly mitigate feelings of helplessness.
By recognizing what is within your control and accepting what you can’t control, you can better direct your attention to pursuing what brings you joy.
Adjust to a shift in identity
It’s true, your frugality might be a lifelong companion, as old habits notoriously die hard. However, retirement marks a profound shift in identity, steering you away from a professional persona that may have been your anchor for years. In fact, many retirees define retirement as a new chapter. This transition calls for a redefinition of oneself, which can significantly influence how you view and use money.
Navigating this change effectively means exploring and embracing new facets of your identity.
Ask yourself: What passions have I set aside? What new pursuits excite me? As you align your spending with these newfound interests and aspirations, your financial decisions gain a deeper sense of purpose.
Emotional resilience plays a crucial role in navigating this journey. Research says building this resilience — possibly through mindfulness, positive thinking or leaning on social networks — can help you adapt to these life changes more gracefully. Therefore, it can equip you to handle the uncertainties of retirement with greater confidence.
Cultivate a more positive relationship with money
Behavioral psychology reveals our tendency to prioritize negative over positive information, a phenomenon known as negativity bias. This bias significantly influences our financial decisions, often leading us to focus more on avoiding negatives than pursuing positives.
When told by an adviser there’s a 99% chance of a successful retirement, many of us fixate on the 1% risk of running out of money. A way to counter this is through positive reframing. It involves redefining money as a tool for joy and fulfillment, not just a shield against potential downsides. This shift in perspective encourages us to see money as a means to enrich life experiences.