With the future financial status of the Social Security program on shaky ground and every consumer product costing an arm and a leg, it’s exceedingly important to build your retirement savings at all costs.
Those costs mean that many are taking frugality to a new level during their working years, which is admirable in concept but oftentimes flawed in execution.
As The Wall Street Journal reported, the same frugal habits you used to build your post-work savings might end up working against you, leading to stress and an unsatisfying retirement.
“That’s what happens when people go from work to retirement, from saving money to spending it,” said author and professor of finance at Santa Clara University Dr. Meir Statman. “Too often, the same personality traits that facilitate saving for retirement become impediments when it is time to spend that money. The mental tricks we employ while working become mental mistakes when we move into the next phase of our lives.”
So how do you transition from working and saving to retiring and spending properly? And what frugal habits can actually hurt your retirement savings? Here’s six things to keep in mind.
1. Don’t Perpetuate Less Relevant Mental Habits From Your Working Days
It will be hard to flip the switch and change your saving and spending habits after refining them over years and decades. Being frugal is like being organized, a learned behavior. But you don’t want your behaviors to stubbornly stop you from enjoying your money in retirement.
And you don’t want to waste too much time trying to live cheaply. Retirement is the start of your golden years — you shouldn’t miss out on life-affirming experiences just to keep more money in the bank.
2. Don’t Force Yourself Back To Work
Depending on how much retirement savings you build, you’ll still have to keep an eye on your spending. Budgeting is still important, but strict rules about spending income and saving capital might need to be relaxed when you stop working.
Spending less than you should because you don’t want to dip into certain accounts can cost you more in the long run because you’ll have to come up with spendable income somewhere — or take greater risks with the money you can use — to pay for your preferred lifestyle.
3. Treat Yourself and Don’t Obsess Over Far-Away Deals
Retirement is a time when you should forgo fighting the obsession to economize. Oftentimes, going out of your way or spending more to save can actually cost you more money. Driving miles to save pennies, buying bulk when you don’t need it or purchasing sale items you’ll never use is counterproductive.
As Sam Dogen, a self-made millionaire who retired at 34, you are better off investing in your career and your retirement savings accounts, building your wealth and budgeting wisely when you’re still working.
4. Don’t Do It Yourself (If You Lack Expertise)
Our younger selves are quick to say, “I’m not going to pay for something that I can do better myself.” The problem is, you typically can’t do it better yourself. When you are scrimping, it’s perfectly fine to change your oil and make stopgap repairs around the house. When you’re retired, things like sizable home improvements are (sometimes) better left to the experts.
“Home improvement projects where families do it themselves to save money, if not done correctly, can end up costing much more than anticipated in fixing the mistakes that were made,” said Lawrence D. Sprung, founder and lead wealth advisor at Mitlin Financial.
The same can be said about your finances. Some retirees relish the chance to “play the stock market” when they retire. Heed Statman’s advice — “Resist that temptation. For one thing, trading by amateur investors is akin to baking by amateur bakers: You’ll never bake a good loaf, because you’ll be opening the oven door every few minutes.”
5. You Have More Time Than You Think…
It’s true that people are living longer than ever before, but estimating when one will pass away is an inexact science. As Statman stated, while younger people underestimate how long they will live, older people overestimate their longevity. As a result, by misunderstanding their endurance, so to speak, everyone tends to spend more or save more than they really need to.
Per a Jan. 2023 BlackRock white paper, most current retirees (80%) “still had 80% of their pre-retirement savings after almost two decades of retirement” and one-third of BlackRock’s survey respondents grew their savings while retired. Spend to enjoy your retirement years.
6. …But You Can’t Take it With You
There’s a lot to be said for “giving while living,” the approach by which you give money to make a difference in someone’s life sooner rather than later.
This goes for money tagged for charities and estate funds meant for family, too, which are usually bequeathed upon passing. Waiting isn’t something that will hurt your retirement savings, but depriving yourself of joy might hurt your retirement fulfillment.
