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The great retirement dilemma: to save or to splurge

You're ahead of the game.

All of a sudden, you've got money left over every month. Lots of it. The kids are through school and out of the house. The cars are paid off. The mortgage is all but paid off. You're a few years away from a comfortable retirement, and you've never had so much disposable income in your life.

"People saved diligently. They've had good luck with investments," says Michael K. Stein, a retired financial planner and author of The Prosperous Retirement. "There are people who are so far ahead of themselves. They are further than they'd ever thought they'd be."

The question is, what to do with all this extra green? Should you live it up or stay the course and sock away the money into your retirement kitty? Living it up sounds awfully nice. You could do the things you've always wanted. You could travel or buy a bigger house or a fancier car.

"Let's buy better clothes. Let's eat better foods. Let's eat out. Let's take a vacation to Europe," Stein says. "There's an endless, endless list of things."

You shouldn't feel bad about enjoying yourself
"Life is a continuum if you become a recipient of more wealth. I think you should satisfy more needs," says Stephen Pollan, a New York financial adviser and author of Die Broke.

"There's nothing wrong with that because there's only one life."

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But there are some financial consequences to living the good life a few years before retirement. The first one is obvious. What you spend on dinners out and a new set of golf clubs won't be finding its way into your retirement stash. So by choosing to live it up you're choosing not to add more to your retirement savings.

The second consequence is less obvious and may be even more important. Once you start living the good life, you're probably not going to want to stop once you do retire.

"If you get an appetite for this kind of plush life, all of a sudden you're in retirement and you can't afford to spend that money. And it feels like deprivation," Stein says.

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After a few years of dining at four-star restaurants, who wants to go back to eating at Red Lobster? Once you've shopped in Paris and Milan, can you really go back to buying all your clothes at Marshalls? Will you want to give up your membership to the upscale country club and its fabulous golf course? Probably not.

"Sure those things could be cut out, but it would not be a happy retirement," Stein says. So you'll need to adjust your retirement budget accordingly. If you increase your lifestyle before retirement, there's a good chance you'll need to increase your budget after you retire.

The best way to do this is to split your surplus between fun stuff and bolstering retirement investments and savings. Finding some kind of middle ground will also help keep your good-time spending in check. It's easy to get carried away.

Stein knows of a couple that took to blowing $25,000 on weekends in Vegas.

"All of a sudden this money was burning a hole in their pocket," Stein says. "They were probably spending 100 grand a year in Vegas."

Don't spend too much in your swinging 50s
"I'm a big advocate of spending your money. But you can't spend it foolishly," Pollan says. "You don't want to go back to the kids for a loan."

Not everyone spends, spends, spends their midlife surplus. Some folks help an adult child buy a first home or bankroll a grandchild's education. But being too generous here could hurt you later. Make sure you and your spouse have plenty to live on during your retirement years before worrying about financing little Susie's college fund.

Some people use their pre-retirement surplus to help figure out what they'll do with most of their time once they stop working.

"Some people have a real clear idea what they'll be doing when they leave the work force. Others do not," says John F. Wasik, author of Retire Early and Live the Life You Want Now.

Some people take art classes. Others start mentoring or volunteer in community or church groups.

"Find your private utopia. Find the thing that really makes you happy," Wasik says. "The kids are gone and self-sufficient. You've got to find something to drive your soul."

Updated: March 6, 2001


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