The general rule all life long is: save more and spend less. Live within your means. But retirement requires a new set of habits, ones that often seem contradictory to everything you’ve been taught about money at this point. When you retire, the habits that helped you build your net worth become somewhat detrimental to enjoying the rest of your life. Retirees face two problems: either they haven’t saved enough to retire in the first place or they’ve saved enough but don’t know how to spend their savings in a way that maximizes enjoyment out of their remaining years.
Here are 5 tips that help you to enjoy your retirement more and how you spend your money wisely:
1. Pay yourself a salary from your retirement funds
Before retirement, hopefully, you saved a little bit from your income (paycheck) and spent the rest to cover your living expenses. The savings (capital) you hopefully did not touch. During retirement, this changes. You have to get used to being comfortable spending your capital that you’ve saved up.
Many retirees spend less than they actually can afford to, or attempt to increase income, leading to greater risk. But why not paying yourself a monthly income that draws from both your income and capital. This should be a fixed amount automatically withdrawn from your capital and income, depending on your age. When you remove the decision of when to cash out, you make retirement spending easier.
2. Avoid FOMO (Fear Of Missing Out)
Another retirement spending problem is when you feel regret for cashing out. For example, you might sell some shares to use the cash to go on a trip. Then a few days later, you check the stock and see it went up 3%. It’s hard not to feel regret.
To avoid FOMO, again, a fixed, scheduled and automated payout in the form of a monthly salary takes this decision and regret away from you.
3. Most people die sooner than they think
According to data from the Social Security Administration, a man reaching age 65 today can expect to live, on average, until age 84.3. A woman turning age 65 today can expect to live, on average, until age 86.6. About one out of every four 65-year-olds today will live past age 90, and one out of 10 will live past age 95. When you look at the data for how long people believe they’re going to live, we see a different story. Young people underestimate their longevity, older people overestimate it. For instance, 68-year-old men have a 71% chance of living to 78 but believe, on average, that they have an 82% chance of reaching that age. Overestimations like this are why retirees have so much trouble spending in retirement.
Therefore, look at family history, your health etc. and then shave a few years off that number. Spend accordingly.
4. The older you get, the harder it is to spend
Trips around the world are a lot easier to do when you’re in good health. Yet too many retirees put off spending on trips or vacations for fear of running out of money. The data shows that a household headed by an 80-year-old spends 43% less than a household headed by a 50-year-old. The reason is: Physical limitations!
The older you get the harder it gets to spend on things you truly enjoy and value.
5. Spend more on the things you really enjoy
Friends might tell you to live a little and spend money on wine or expensive meals out but if food is not your thing, your money could be better spent elsewhere. Imagine, you love traveling but hate flying. Then consider to fly business class instead of economy. Don’t just look at the price and automatically buy more expensive things now that you’re retired or just because you can afford it. Spend more on the things you really enjoy doing.
6. Give while you can enjoy it
Giving is one of the greatest pleasures of living a rich life. But most people don’t get to feel the enjoyment because they wait to give until they die. Enjoy the moment, seeing the difference you’ll be making in people’s lives today. Enjoying what you have, creating memories, and sharing it with the people you love is much more enjoyable than what you leave behind in your bank account. Have on mind: whatever is left, you are not able to take it with you!