From Saver to Spender: Not so Easy (Part 1)

Years ago I received a call from a client, worth 36+ million dollars with a $300,000 a year pension distribution and only used half the pension annual payout, asking if it was going to be ok to spend $250,000 on a recreational vehicle. 

One large difficulty with retirement is the challenge and fear of leaving the income generator, whether it be our business ownership or job, and relying on the fruits of our savings.  As we get older the fears of change continue to grow relative to our vulnerabilities of income security. 

The journey following the start of our young career often leads us to get married, have kids, buy a house, buy more expensive vehicles and essentially depend more on the increase in income we receive from promotions or business growth.  Early in our career, we tend to ignore that the future could be any less ideal than our incredibly optimistic vision of the future.  When we are young we can allow ourselves to leave a job and pursue another job in hopes of bettering our lives.  If the job or career fails to turn out, like we hoped, then we have the ability to continue looking for better possibilities. 

Some individuals, “Extreme Spenders”, spend every dollar earned to experience life and believe that better jobs tomorrow will eventually make up for the lack of planning today for retirement.  The difficulty with betting on higher incomes in the future is the lack of better-paying jobs the higher we progress up the income ladder. 

On the other end, some, “Extreme Savers”, believe that life is unpredictable and save every dollar they earn and don’t spend but on absolute necessities.  The difficulty with saving every last dollar is that we don’t really get to experience things like travel, entertainment, and vacations. 

Somewhere the rest of us fall in between both extremes.  And the closer we are to one extreme viewpoint vs. the other is often dependent on the sensitivity to the fear that the future may not look like our beginning optimistic vision.  Also the closer we are to the “Extreme Saver” profile during our career the more likely we will have the necessary funds to continue the lifestyle we have come to enjoy.  However, the closer we were to the “Extreme Spender” profile during our career the more likely we will be required to work longer or decrease our current lifestyle during retirement. 

This is important to understand, as somewhere along the way, as we get closer to retirement the realization starts to sink in about the cost of all the things we have come to depend on.  Things like a big house, expensive nice cars, travel, entertainment, hobbies, and vacations.  As the income generator starts to stall or go away the fear of transitioning to living off of retirement income exclusively starts to elevate. 

Until next…(Part 2)