I received an intriguing question from a client recently. His query: “We who are savers struggled initially as young earners to develop the discipline to pay ourselves first. We have spent the first two thirds of our lives making spending decisions based on debt avoidance rather than conspicuous consumption; all with the goal to make sure we would achieve financial independence in our retirement years. But now that we’re retired, that deep-rooted discipline comes back to haunt us as we transition into our spending years. I'm finding it difficult to spend the money now, even though we are financially secure. Any advice?”
Actually, this is not an uncommon issue with our retired clients at the Center. There is an element of self-selection that occurs for our long-time clients—they tend to be both forward-thinking “planners” by nature and they have generally demonstrated excellent self-discipline over the years. It is not unusual that this results in having more financial resources than they might have expected or imagined, and the careful spending habits developed over decades don’t change quickly.
For many, many years, I have defined “financial planning” as the process of finding an appropriate balance between spending now and investing for the future to ensure that all of your financial goals are accomplished throughout your life. Most people tend to err on one side or another—they either spend so much now that they jeopardize their future goals; or they have far too aggressive savings goals, giving up current quality of life unnecessarily. In planning, we can quantify what it takes to meet future financial goals, and making sure that we are doing what is needed to help reach those goals—whatever is left can be spent freely and without guilt on those things that are of highest priority.
There are some that find themselves in the enviable position of having more than they need at retirement. Here again, we can quantify what it takes to maintain financial security with some cushion for unforeseen contingencies—
The excess is available for other priorities, which can include:
- Gifting: to family members or to charities
- Creating a meaningful financial legacy
- Increasing one’s annual income to incorporate some “luxury” items or experiences
- Pursuing passionate interests such as collecting art, fine wine, or extensive travel
My advice to you, if you are in this position, is not to “deny yourself” if there is something you would like to do. This is not to recommend spending money frivolously; but on the other hand, if there is an expenditure that would improve the quality of your life or the lives of those you care about, don’t hesitate to spring for it—even if it seems “unnecessary”. The ultimate goal here is to pursue those areas of interest because they are meaningful and important to you, unconstrained by financial concerns. That, friends, is true financial freedom.
Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James.