It’s certainly a broad question without a “one size fits all response.” Every person has unique goals, ideas, and visions of how they would like to see retirement go. For some, they envision traveling the world and seeing all the places they had only dreamed about from their office. Others can’t wait to take advantage of newfound time to pursue a hobby or skill. But I think at the root of this question is something that we will all face: how do we shift from a lifetime of saving and accumulating to suddenly spending?
Most of us spend our adult lives reinforcing a save, save, save mentality. From our first full-time job until retirement, some of us will spend 40+ years delaying gratification in hopes that it will provide financial freedom in retirement where we can live our best lives. As retirement account balances grow, there is a sense of pride and accomplishment. For a few, their entire identity can become tied to their net worth.
In practice, saving and investing is a fantastic thing. It takes an exceptional amount of sacrifice and discipline that should invoke a sense of pride for those who do it effectively. Because of this, our human instinct becomes the preservation of our wealth. As a wealth manager, I’ve worked with individuals who were so proud of the fact that 15 years into retirement they had maintained, or even increased, their net worth since retirement. While inherently this isn’t a bad thing it’s often motivated by the fear of running out of money. This ultimately begs the question, what was the point of the hard work and savings if there was no intention to begin spending? Being motivated by fear is not always a bad thing – it’s an instinct that helps us survive. However, it’s not something that any of us want to define our retirement. That’s why working within the context of a sound financial plan – something that Howe & Rusling specializes in – is so important to help maximize your wealth and well-being.
So how do we shift our mentality at retirement from a lifetime of saving to suddenly spending? This requires intentionality. We need to start thinking about our retirement long before the day we get there. What do we want to do with our time and money when that day comes? A financial advisor can help set an appropriate spending target based on what you have accumulated, but only you can define your goals. There has been much research done on what types of spending provide the most fulfillment. It’s true that money can’t buy happiness, but studies have shown that certain spending trends can provide greater satisfaction. These are some of the areas I hope to spend in when retirement comes for me:
Spending Money on Health
We only have one human body. A major reason people lack fulfillment in retirement is that they can’t physically accomplish things that they want to do like traveling and interacting with grandkids. Making an investment in health can be expensive, and there are certain factors out of our control, but spending time and money on maintaining and improving our health is without a doubt valuable. My colleague, Ryan Tomko, did an excellent job highlighting in his article last week the global explosion of spending on health and wellness in recent years. An investment in our health is an investment in our future.
Spending Money on Time
There is a constant trade-off between money and time. You can usually have one or the other, but rarely both. When we are young, we have more time than money. In an effort to save money we do things ourselves like mow the lawn, shovel the driveway, fix something in the house that is broken. As we age, time becomes our most valuable resource. We can purchase back our time by hiring someone to take care of the yard, house, vehicles, etc. so that we can spend more time with kids, grandkids, pursuing hobbies, and traveling. We sacrifice time while we are working to earn and save money. Retirement is a great time to “buy back” some time with the resources we have saved.
Spending Money on Relationships
Dr. Amit Shah from the Mayo Clinic said the following regarding relationships:
“Over many years of taking care of older patients, I’ve learned that the factors many people think are important for aging well – such as having longevity in your family or lack of physical illnesses – do not guarantee a positive experience with getting older. It’s the quality, duration and nature of your relationships that seem to matter most.”1
Human connection seems to be undervalued these days – especially in a post-Covid world that has popularized isolation. Retirement can be isolating and lonely as well. The workplace provides built-in, long-term relationships that suddenly disappear without intentional action. Making a conscious effort to maintain connections and invest in new relationships is vital. Spending extra money on joining that social club, or meeting for coffee and meals consistently can be well worth the expense.
Spending Money on Experiences
I’ve been reading the book Die With Zero by author Bill Perkins. While I don’t agree with every thought from a financial advice standpoint, I enjoyed his premise on the value of experiences:
“Unlike material possessions, which seem exciting at the beginning but then often depreciate quickly, experiences actually gain in value over time: They pay what I call a memory dividend.”
The rationale is that every experience we choose to spend money on creates memories. For years down the road, we can recall those memories positively (in addition to each new experience we have in that year). As we age, these memories compound, leading to greater happiness and fulfillment.
Figure 1 “Die With Zero” by Bill Perkins, Fulfillment Curve, p. 26
I love how my colleague, Dylan Potter, framed it in his article from back in November: Things I’ve Learned:
“Draw a Venn diagram. On one side write “people you love” and on the other side write “experiences.” If these two circles intersect with any financial decision, always spend the money.”
For me, all this rings true. Some of my fondest memories have been spending time and trying new things with the people I love the most. It comes at a cost – time and money – but the regrets are few and the payback is immense. I am going to prioritize having as many experiences as possible while I have the time and health to do so.
Spending Money on Others
We’ve all heard the saying that “it’s better to give than to receive.” Most of us can think back to a time when we experienced joy from giving to someone else. This was backed up by a 2014 study that observed people who spent money on others achieving a higher level of happiness.2
It’s common to see children receive an inheritance or charities a large bequest when someone passes away. While it doesn’t diminish generosity, the gift giver doesn’t get to experience the joy or utility that the gift is going to provide. There are many worthy charitable organizations that would stand to benefit from your generosity immediately – and you may be able to save yourself some tax dollars while you are at it. The same goes with children, family, and other loved ones. It could be worth discussing the acceleration of some gifts, in a responsible way of course, so you can enjoy the impact. Maybe it’s as simple as contributing to an education fund, helping pay down some debt, or funding an important milestone like a wedding. No matter what form it’s in, it’s something to consider.
So, what should you spend your money on in retirement? That’s for each one of us to decide. If you haven’t started thinking about that question already there’s no better time than now. We think spending is easy, but it might be anything but. It’s time to start preparing to spend. With some intentionality we can strive to unlock maximum fulfillment from our money – and that’s worth saving for.
Disclosures: Howe & Rusling, Inc. is a registered investment adviser with the U.S. Securities and Exchange Commission (SEC); however, registration does not imply a certain level of skill or training. This material is for informational and educational purposes only and should not be considered investment, tax, or legal advice. The opinions expressed herein are those of the author and do not necessarily reflect the views of Howe & Rusling, Inc. All investments involve risk, including the possible loss of principal. Past performance is not indicative of future results. Any references to specific securities, investment strategies, or financial planning concepts are for illustrative purposes only and do not constitute a recommendation or solicitation to buy or sell any security or adopt any investment strategy. Individual circumstances vary, and readers should consult with their financial, tax, or legal professionals before making any financial decisions. The information contained herein has been obtained from sources believed to be reliable, but Howe & Rusling, Inc. does not guarantee its accuracy or completeness. Any third-party content or external references are provided for informational purposes and do not constitute an endorsement.
- https://mcpress.mayoclinic.org/healthy-aging/a-surprising-key-to-healthy-aging-strong-social-connections/ ↩︎
- Dunn, E. W., Aknin, L. B., & Norton, M. I. (2014). Prosocial Spending and Happiness: Using Money to Benefit Others Pays Off. Current Directions in Psychological Science, 23(1), 41-47. https://doi.org/10.1177/0963721413512503 ↩︎
