Should people entering retirement cut their spending to make their money last, or spend more to make the most out of life? It depends on circumstances, but more than half of taxpayers are spending more during the first three years after they start collecting Social Security.
According to a report based on tax data and analyzed by economists at the Investment Company Institute and the IRS, those most likely to spend more are people who have lower incomes. Middle-income earners spent about the same, and the higher-income earners spent somewhat less than during their working days.
The data can be a bit confusing, as it didn’t measure actual spending but how much income was left after taxes. Also, nearly half of people were still working even three years after claiming Social Security.
So what should you do about your spending to make sure you don’t run into financial difficulty after you retire? The skilled and seasoned Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer understand that even the most well-intentioned people can find themselves in a financial hole during retirement. We offer a free consultation to evaluate your situation and help you live life to the fullest and yet remain financially secure.
Spending After Retirement
The report pointed out that for many people, retirement is a multi-year transition. Since people are living longer, retirement could last for a 30-year period, or even more. Spending often fluctuates, and even people who spend more at first often slow down their spending in later years of retirement.
In general, experts recommend you prepare to spend about 70% of pre-retirement income when you are retired. Living costs may drop because you no longer have to save for retirement; you probably will pay less taxes and transportation costs if you’re no longer commuting to work; and you may have paid off your mortgage or downsized. However, especially when you first retire, spending may rise because you may travel more and spend more on leisure activities like golf.
Some experts feel that people are not spending enough during retirement, well below the 4% that many financial planners say is safe. A big reason is that retirees worry about spending too much and regard big spenders as irresponsible. Retirees who have been diligent about saving all their lives have a hard time abandoning these habits and increasing spending, or they may just be fearful about doing so. The result is that retirement is less enjoyable than it should be, as people who have the money and time to enjoy themselves don’t because they have become overly frugal and actually spend too little.
How to Spend More
If you are someone who should be spending more in retirement, you probably need to work to negate the mind-set you needed to have while building your nest egg but now is reducing your quality of life.
According to the Wall street Journal WSJ.com/Encore there are some things you can do to help:
- Utilize Required Minimum Distributions (RMDs). These are government-mandated withdrawals from defined-contribution retirement accounts. You are required to take out money at increasing rates starting at age 70½. If the decision to cash in savings is made for you, it can help break the barrier to spending that money.
- Find Ways to Tap Capital Without Regret. Fear of having regrets because you made financial errors such as selling stock or property at the wrong time is a block to spending. To avoid this, do things such as setting up a regular schedule of investment sales, or using managed-payout funds that remove the responsibility for choosing the right times to sell.
- Be Realistic About Lifespan. People often miscalculate and overestimate how long they will probably live, which causes them to underspend in retirement. Older people are more likely to overestimate their lifespan, so they underestimate what they can spend.
- Don’t Delay Doing What You Enjoy. There is evidence that people consume less as they pass age 70, even if they have ample financial resources. Physical limitations or the death of a spouse often keeps them from doing things they would have when they were younger, so do it while you can.
- Identify What Brings You Joy. Why spend on fancy cars and restaurants if you don’t really enjoy them, when you could be focusing on your love of travel? Does it give you pleasure to give to charity or help your child or grandchild while you are still alive instead of leaving a big inheritance after death? Find what can bring you the most joy and direct your spending in those areas.
- Don’t Spend More Than You Can Afford. On the other hand, whether or not you are in retirement, you should never get so carried away with spending that you risk winding up in a financial hole. Finding the proper balance can be difficult, and our seasoned attorneys may be able to help.
Contact us for Help
The experienced and compassionate Ohio debt-relief attorneys at Fesenmyer Cousino Weinzimmer know how difficult it can be to change lifelong spending habits, and you may well benefit from professional help doing so. We offer a free consultation to evaluate your entire financial situation, to examine your income, your debts and your goals and help you find solutions that work best for you.
To learn more about how our firm can be of assistance, call one of our conveniently located office branches at 614-228-4435 (Columbus), 937-222-7472 (Dayton), or 877-654-5297 (Cincinnati) or email for your free consultation so we can determine what solutions will work best for you.