Cracking Open Your Nest Egg: Tips for Spending Your Money After Years of Saving
/By Shelley Murasko
“What got you here won’t get you where you’re going.”
While this classic saying applies to many areas of your personal and professional life, its innate wisdom can also relate to your financial life.
Whether your allocation strategy is moving slowly over time from an all-stock portfolio to a bond portfolio or you are transitioning from high-income years to Roth conversion years, there are many aspects of your financial life that require tuning over time.
Yet there is a bigger challenge that I run into with clients: getting them to switch off their frugal spending muscles and start spending on their priorities in retirement.
Learning to Balance Saving and Spending
This is more common than you might think. After all, the smart practice of careful spending and saving over decades is a habit that can be hard to break. In fact, it’s what allows many to retire at a reasonable age, put children through college, and save up for an array of worthwhile financial goals.
As with any fine-tuned discipline that results in the achievement of a goal, the buildup to a certain value in your IRA can give you a huge sense of purpose and, eventually, accomplishment.
When it’s time to shift from saving to spending, however, you’ll have to learn to flex a different muscle group: your spending muscles!
I’m not suggesting that once you retire it’s time to go crazy and start blowing through your savings. If you have credit card or car loan debt, and you can’t seem to live within the 4% withdrawal rule, this article is probably not for you.
I’m merely suggesting that, when retirement nears, you learn to accept the fact that it’s okay to put your pile of money to use. In fact, the safe withdrawal rate of 4% of assets is a great place to start as it has been the most pressure-tested of all the withdrawal strategies.1
Thus, if you’re not drawing out at least 3% of your investment assets per year, it might be a really good time to probe into why.
Even if you’re not yet retired, but you find yourself in a very strong position for retirement, it might be time to let go of some of your frugal living habits.
Take grocery shopping, for example. Let’s say you’re standing in the cereal aisle at your local supermarket hoping to restock a box of Cheerios® for tomorrow’s breakfast. But since this isn’t Costco® or Sam’s Club® where you usually shop, the darn stuff is priced at $6.99 a box.
As you consider your options, perhaps one of these thoughts runs through your head:
“@#$% you, grocery store! I’m driving to Costco.”
“I’m going to boycott these prices!”
“Hmm…I wonder if any of the competing brands are any good?”
“What else is a good substitute for Cheerios for breakfast?”
And then thankfully, after exhausting all other mental options, you settle on the correct one:
“JUST BUY THE CHEERIOS, YOU CHEAPSKATE!”
Flexing Your Spending Muscles
Why is this the correct option? Because it’s highly unlikely that you’ll wake up one day, look at your bank account, and say, “If only I had an extra $2 in there, I would be a happier person.”
This is just one scenario where your frugal spending muscles attempt to kick in. Here are a few others:
· Filling your gas tank only a quarter full because you’re at a gas station that costs you $0.50 more per gallon than the one across town
· Skipping time with your friends on Saturday because you must do laundry during the lowest cost “off peak” utility company hours
· Buying your friend an adequate book at a thrift store as a gift instead of splurging the extra $10 on a book she might really like
· Shying away from the $14 bottle of wine for the $7 version
· Experiencing deep anger at having to clean your house each week and grumble that “no one else can do it quite like you”
· Feeling regret after spending $100 on a nice dinner date with your beloved spouse
Ahhh…the list goes on and on. Just ask the daughter or son of a retired person with millions in the bank who still refuses to subscribe to Netflix® because it costs $15 a month.
Overcoming Your Fear of Spending
After years of saving carefully, it’s perfectly normal for the fear side of your brain to kick in when spending an extra $2 on a carton of eggs.
Yet, I strongly urge you to try harder to overcome your fear. It takes practice to tame the voice inside of you that says, “Hold on! You’re going to run out of money and be poor forever.”
Fortunately, there’s a happy medium here.
You should, of course, focus on being a responsible steward of your life savings. But along with that, consider how to put your money to work in ways that add joy to your life.
Many of my clients have found enjoyment in hiring a gardener, giving generously to their preferred charity, upgrading to business class on an airplane, or simply ending the “find the cheapest at all costs” spending approach when buying clothes, shoes, tools, and other items.
If you struggle with this adjustment, you may even want to set aside an account for spending frivolously. Park a certain amount in that account each month. Then, use whatever is left at the end of the year to give generously to your favorite charities, friends, teachers, and other important people in your life.
Here are some other useful tips for improved splurging:
Try to find the unpleasant aspects of your life, and focus additional spending on those areas. This is not always a slam dunk the first time around. It might take some fine-tuning to figure out the right level of help you need in your life to enhance your joy.
In addition, look beyond simply upgrading the things that are already good in your life. While your neighbor might thoroughly enjoy daily runs to the gourmet coffee shop, that doesn’t mean you need to upgrade your morning coffee routine if you’re happy with your current one.
But if there’s something that causes you regular angst and stress, it could be a good target for improvement — whether it’s a leaky roof that makes you fear rain, a long commute that makes you dread going out on weekends, or an ailing body that needs a tune-up.
If giving to others is your jam, consider mindful ways of doing so, such as treating your grandson to a shopping trip and lunch rather than just sending a gift card.
If you’re worried about how your recipients might spend money you gift to them, you could consider contributing it to a retirement account on their behalf, making a payment against their debt, or adding to their 529 college fund. Also, giving stock instead of cash might save you on taxes while also encouraging your recipient to learn a little about investing.
As far as charitable giving, Guidestar® can be an excellent website to consult if you want to check on the validity of your preferred causes.
Whatever your path to moderate and mindful spending might be, it’s worth your time and energy to determine the best way to exercise your spending muscles.
Like Grandpa Vanderhoff said in the 1936 classic play “You Can’t Take It with You”: “Maybe writing will stop you from trying to be so desperate about making more money than you can ever use. You can’t take it with you, Mr. Kirby. So what good is it? As near as I can see, the only thing you can take with you is the love of your friends.”
Source:
1. Hayes, Adam. (Nov. 27, 2021.) “Safe Withdrawal Rate (SWR) Method: Calculations and Limitations.” Investopedia. Retrieved from https://www.investopedia.com/terms/s/safe-withdrawal-rate-swr-method.asp.
