Spend It! (How to Spend Money in Retirement)

Key Takeaway: You might be good at saving, but are you good at spending? Enjoying money is harder than it seems, but the jolt of retirement reminds us we must be more intentional in spending than in saving. And our saving psychology can get in the way of that enjoyment.

I have advised people for 30 years about how to save money, invest money, and spend money. I have seen that accumulation is easier than decumulation. I have written about this difficulty from a technical perspective: Decumulation is harder because you must consider tax ramifications with every dollar spent. In this blog, however, I want to explore decumulation from the standpoint of spending psychology. The frugality that helps build a substantial nest egg during one’s earning years can become an obstacle once it is time to enjoy and utilize those savings in retirement.

Said another way, our muscle memory of save, save, save gets in the way of enjoying spend, spend, spend (and yes, spending does not buy happiness).

Typical Spending Behavior

Behaviorally, spending comes down to a trade-off between money and time. Using money to buy time is a shift that occurs not only as we have more money but also as we age. When we are young, we have more time than money, so we are do-it-yourselfers. We mow our own lawns, clean our own homes, and find family members to help us move. As we age, though, money becomes a tool we use to buy time. Hiring others to mow the lawn, clean the home, or move our belongings frees us up to spend more time with our children, earn more money, or even vacation more.

The trick is knowing when the exact time is that you can shift from being a buyer of time versus a seller of time. Most should start before retirement with certain issues (e.g., spending more on healthcare—see below for more detail). But if not while still working in our 50s, retirement is a start. To do that, you must acknowledge that you want to improve your quality of life with premium services and experiences, along with meaningful giving to charity and family that reflects your values. Assuming you saved well, retirement is not a time to be cheap. This can be a hard shift in thinking.

Enhanced Retirement Spending Ideas

As I lay out some ideas for spending, I want to acknowledge that I am speaking toward people who have saved enough in life. So always work with a financial advisor before considering this path. Assuming you have the money, though, here are some ideas where I see people struggle to spend when it could add a lot of joy to their lives (this is not an all-inclusive list):

• Concierge/integrative/holistic medicine: Personalized healthcare with a concierge doctor ensures better attention and more accessible medical care, which is crucial as health needs increase. This can include alternative medical testing, allowing you to opt for advanced health screenings and tests not covered by insurance to detect health issues early in life. Dr. Peter Attia would call this Medicine 3.0 (versus the current Medicine 2.0, which waits until we get sick to address issues). The problem is that you may have to pay cash for some of these things versus defaulting to not doing them if insurance does not pay. Yet many people get to retirement with a health savings account (HSA) that they might be able to use on some of these expenses.
• First-class travel: Travel comfortably with first-class tickets. The added comfort can make travel easier on the body and more enjoyable. Arriving somewhere more refreshed (even having slept, potentially) makes the early part of a trip go better. And as I have told many people, you might as well do this because your children, who really like premium experiences, will do it if they inherit your money.
• Experiences over material goods: Prioritizing experiences like cooking classes, art lessons, or even adventure sports (or pickleball) can lead to new friendships and enriched learning opportunities. The MIT AgeLab points out that one thing that allows us to maintain our health as we age is to continue developing new relationships. Connections keep our minds healthy, which keeps our bodies healthy. I would add that spending on experiences with your family, where you pay for the entire family to vacation together, is a wonderful use of money as you and they have that memory to share forever.
• Charitable giving: Engaging in charitable activities or donations can provide a deep sense of fulfillment and a lasting impact on the community. Consider setting up charitable funds or donating to causes close to your heart. If you want to take this to a new level, you can include family members in philanthropic activities, which allows you to pass on your values in a fun way.
• Gifting to children or grandchildren: Financial gifts can help support your family’s next generation, be it through making contributions to education funds, helping with down payments for homes, or simply aiding them during crucial life events. The trend I have experienced over the past 30 years that I find most interesting is how more people would prefer to give money to their children or grandchildren while they are still living to see how that money impacts the family. Leaving it until death, when they cannot see that impact, has become less appealing.
• Home improvements for comfort and safety: Upgrading your living environment to suit your aging needs, such as installing safety features or remodeling for easier accessibility, can enhance your daily comfort and independence. I would go one step further and point to some who might do this with a cabin, even buying a new boat, to entice family members to visit more.

I could continue with this list, as I have seen some creative spending that adds so much joy to people’s lives. My main point, though, is to encourage you to enjoy what you have worked for, as retirement, on day one, is not the destination. The journey continues.

Concerns for Running Out of Money

As I write this, I hear the financial advisor’s voice in my head reminding me to say that you do have to always monitor spending so that you do not run out of money (and that you understand the tax implications of your spending). If you work with an advisor, though, this is an annual exercise so that you can see, directionally, where you are before the spending becomes an issue.

I typically see people holding back for too long on spending and then getting sick. And once health issues arise, some of the fun spending like travel is off the table. This means people typically leave a chunk of their money to their heirs anyway, without enjoying it. The longer I work in this profession, the more I see that spending is as important as saving if you genuinely want to enjoy life to its fullest.

The opinion of the author is subject to change without notice and must be considered in conjunction with relevant regulation, as well as subsequent changes in the marketplace. Any information from outside resources has been deemed to be reliable but has not necessarily been verified. Each individual has unique circumstances to which this information may or may not be relevant. Under no circumstances will this information constitute an offer to buy or sell and it does not indicate strategy suitability for any particular investor.