Why Enjoying Your Hard-Earned Savings Can Feel So Scary
You’ve spent decades saving, investing, and planning for this moment: retirement. You’ve built a nest egg, and now it’s time to enjoy the fruits of your labor. But instead of feeling excitement, many retirees experience anxiety when it comes to spending their hard-earned money. Why is that?
In this post, we’ll explore the psychological barriers that keep you from enjoying your retirement savings and provide a framework to help you embrace the freedom you’ve worked so hard to achieve.
The Accumulation Mindset: A Double-Edged Sword
For most of your adult life, you’ve been in “accumulation mode.” Every financial decision revolved around saving.
Saving as a Habit: You’ve trained your brain to view spending as a threat to your future security. A dollar spent is a dollar that can’t be invested.
The Shift to Spending: Now, in retirement, you’re expected to flip that switch and become a spender. This sudden change can feel unnatural and even reckless.
The Paycheck Dilemma: The regular paycheck that provided security is gone, replaced by a portfolio balance that you need to withdraw from. This can create a sense of loss and anxiety.
The Retirement Consumption Gap: Understanding the Fear
Research shows that many retirees experience what’s called the “retirement consumption gap.” This is the difference between what retirees could safely spend and what they actually spend.
Statistics to Consider: A study from the Alliance for Lifetime Income found that 47% of retirees feel anxious about spending money in retirement.
Legitimate Concerns: Fears about market crashes, inflation, and healthcare costs can amplify this anxiety. For instance, a recent Fidelity study estimated that a couple retiring at 65 might need around $345,000 just for healthcare expenses.
The Legacy Factor: Many retirees also worry about leaving a financial legacy for their children and grandchildren, which can further inhibit spending.
The Irony of Saving: Dying with Too Much
It’s ironic, but many retirees end up with more money than they started with, simply because they were too afraid to spend.
Michael Kitces’ Research: Financial expert Michael Kitces has found that conservative spending often leads to portfolios that grow throughout retirement.
The Risk of Fear: By focusing too much on the fear of running out of money, you might miss out on the very experiences you saved for.
Phases of Retirement: Spending Isn’t a Straight Line
Retirement isn’t just one long stretch of time; it has phases.
Go-Go, Slow-Go, No-Go Years: Your spending will vary. There will be years when you want to travel and enjoy life, and other years when expenses are lower.
Don’t Forfeit Your Reward: Letting fear dictate your spending means you might miss out on the rewards of your hard work.
A Framework for Freedom: Give Yourself Permission to Spend
So, how do you overcome this fear and start enjoying your retirement? It begins with a mindset shift and a practical framework.
Secure the Essentials:
Work with professionals or run the numbers yourself to ensure you have enough to cover your basic needs.
This gives you a solid foundation to build upon.
Freedom to Spend:
Identify what brings you joy. Do you want to travel? Take up new hobbies?
Set a budget for these activities. For example, if you dream of taking your grandkids to Disney, plan for it!
Prepare for the Unexpected:
Life is unpredictable. Health issues, home repairs, or market downturns can happen.
Create a plan that includes different “buckets” for cash, bonds, and stocks to prepare for these uncertainties.
Recap: Embrace Your Retirement Freedom
Retirement should be a time of joy and fulfillment, not anxiety. By understanding the psychological barriers to spending and implementing a clear framework, you can give yourself permission to enjoy the life you’ve worked so hard to build.
If you want to dive deeper into these concepts, check out the full video linked below.
Education only, not advice. Consult your professional(s).