If you have been saving for retirement how do you change from saving to spending? So many questions to address: have I saved enough? how do I pass on money to my family when I die? do I have enough money to enjoy life? how long will I live? do I need
Time report: Researchers including American College of Financial Services chief academic officer Michael Finke found a “retirement consumption gap” when they examined retiree spending habits between 2000 and 2012 for a study published earlier this year. Specifically, except for households of low to modest means, the retirees they tracked were spending less on average than the amount available to them from Social Security, pensions and income from retirement accounts. In the case of wealthy retirees, the researchers calculated that they were spending less than half the annual amount they could actually afford to spend.
Here is some useful alternative advice from MoneySense.ca
Extract: The “saver” in you spent decades preparing for the time when the pay-cheque would stop. You have a new “job” now. One way to think of the job of “spender” is to manage cash flow responsibly while living a great life. In the latter phase of life, sometimes people scrimp unnecessarily, worry irrationally and do poorly on the “great life” part of the job.
So, how to minimize the fear and anxiety? First, change the mindset. Second, figure out the math.
Start by embracing a new mindset of what the job of a “spender” is all about. You’ll have your own version of what that means. I don’t want or expect you to morph into a free-wheeling, gold-chain wearing, Vegas high roller. Come up with your own vision for what you want this next phase of life to look like—and spend according to that vision.
And second, get very, very clear on the math. Shannon Lee Simmons is the author of Worry-Free Money: The Guilt-Free Approach to Managing Your Money and Your Life. She says
You should consider your short, medium and long-term income needs, as well as how long you need the money to last.
Fiona Tait, technical director at Intelligent Pensions says the usual port of call is to consult a financial adviser to determine a level of income that is sustainable over your predicted lifetime, adding this is all the more important as many people underestimate just how long they will live for.
BUT .. Don’t be afraid to spend your cash
A lot has been said and written about the dangers of splashing retirement cash willy-nilly and quite rightly, with things like the cost of latter life care to factor in. However, there is a thin line between being prudent with your pension fund and being overly frugal.
‘Arguably this is a lesser problem, particularly if there are family members who could inherit the fund after their death. The optimal approach would be to use online planning tools or ask a professional adviser to calculate how much may be spent each year,’ Tait says.
‘This should then be revised regularly as people age and their circumstances change.’