The great retirement dilemma: to save or to
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."
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."
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
"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,"
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
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."
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