Many retirees have a spending problem… they don’t spend enough! If you are blessed to be one of those people who were raised conservatively and have had the discipline throughout life to save and provide for a successful retirement, then you might also be one of those people who have a hard time spending.
With all financial planning, there is a balance. When it comes to retirement income, there is balance between how much you should save and how much you should utilize during the years you have left. Naturally, the first step is to run a financial plan to determine how much you can spend annually on a conservative basis. If the plan tells us that you can spend $150,000/yr while still accounting for all the “what ifs” in life (long-term care, recessions, inflation, longevity, etc.) and you are spending $100,000/yr, then it is time to decide.
Option 1) Save the extra $50,000/yr. Despite providing the most peace of mind, it is important to understand that this huge pile of money is growing only to be passed on to your heirs. Worst case, if estate taxes apply and without proper estate planning, the government could take up to 40% of it.
Option 2) Spend it on yourself. Although this is the most encouraged, I realize that this can sometimes be the hardest. You have done an amazing job saving and being prudent with your money, but it may be time to shift gears and make the most of all that you worked for. Take the trip, buy the car, pay for the services you would rather not do yourself, and create memories for your family while you still have your health.
Option 3) Spend with purpose. The average age of someone who receives an inheritance is in their early 60s, however the average of someone who could truly utilize the money in life is in their early 30s. By the time you are 60, you have built a great life and may be ready to retire. Whereas in your 30s, you may be starting a new family, moving into a new house, and doing whatever you can to get ahead. Your purpose may be to help others. Consider taking your loved ones on vacation, paying for college tuition, helping with medical bills, or opening that first Roth IRA for a grandchild. For those who are charitably inclined, support the causes you truly believe in. Save faithfully and give generously, both are acts of responsibility. And everyone can agree that you get much more out of giving while you are alive.
Remove what drains you, retain what serves you, and spend in ways that match your values. To learn more on how to optimize your gifts from both an estate and tax planning perspective, visit RochesterWealth.com.
