Weekend Reading: Maximizing Life Enjoyment Edition
Some of my younger clients are concerned they might be over-saving. I think they might be onto something.
I have the unique perspective of having written hundreds of retirement plans over the last eight years. One common theme is that retirees who had a high savings rate throughout their careers are rarely able to flip the switch from savings mode to spending mode.
Imagine you spent $50,000 per year after-taxes during your working years, while consistently saving 25-30% (or more) of your income. In retirement, it becomes clear you can safely spend up to $100,000 per year without ever worrying about running out of money.
Could you do it? Could you double your spending in retirement and enjoy the fruits of your labour? I’d argue most can’t (or won’t).
What if, instead of spending $50,000 per year throughout your working years for the chance of spending up to $100,000 per year in retirement, you spent $75,000 per year throughout your entire lifetime (adjusting annually for inflation)?
Economists call this consumption smoothing. I call it maximizing your life enjoyment.
Think about it. You save and invest for the future, but when it comes time to spend the money you can’t bring yourself to do it. You’ve never exercised your spending muscles.
Instead of living your dream retirement you continue saving, maxing out your TFSA annually and taking your minimum RRIF withdrawals and putting the money into a non-registered account (just in case).
My younger clients are starting to see this happen with their own parents. Heck, my older clients know it happened with their own parents.
How do you know you’re over-saving? A big clue is if you’ve maxed out your registered accounts and start asking, “what’s next?” with your extra cash flow.
Instead of blindly shovelling money into a taxable account with no purpose, consider increasing your spending on one or two categories that are important to you. Start exercising those muscles so that when you get to retirement you’re not sitting there with millions of dollars asking, “what’s next?”.
I’m far from a YOLO practitioner. We need to strike the right balance between spending now and saving for the future. But the future is never promised.
If you have the means to enhance your life enjoyment while still saving a reasonable amount for retirement, I say go for it.
After all, my anecdotal evidence suggests you probably won’t increase your lifestyle spending in retirement anyway (you certainly won’t double it). A modest increase in spending now, sustained throughout your lifetime, can lead to better overall life satisfaction.
This Week’s Recap:
This is the longest I’ve gone without updating the blog, but we’ve been away travelling for the past few weeks. Our third trip to Scotland was absolute magic. We spent four nights in Edinburgh, five nights in Fort Augustus, and another two nights in Glasgow.
We rented a car in Stirling so we could drive through the Scottish Highlands and out to the Isle of Skye. We lucked out with some incredible weather on Skye, and enjoyed our stay at the south edge of Loch Ness.
Before our travels, we shared a monster post on probate, including how to avoid or reduce probate fees and whether you should even try.
Many thanks to Erica Alini for including that post in her Carrick on Money round-up.
Weekend Reading:
Morningstar’s Christine Benz on her failings as an investor – do as I say, not as I do.
PWL Capital’s Ben Felix answers the question, will more money make me happier?
Reddit’s Personal Finance Canada community offered advice on whether it makes sense to pay down a mortgage earlier, especially with high interest rates.
High interest rates mean the new normal in vehicle buying is a monthly payment in the $1,000 range. Gross.
Single and stressed? Squawkfox Kerry Taylor offers financial advice when flying solo.
Cullen Roche explains why 2023 is the year that gives everyone a narrative.
Retirement without home ownership is possible. Financial advisers explain how to get started.
Financial planners tend to use inflation or inflation + 1% when projected future wage growth. That’s not quite right. PWL Capital’s Jordan Tarasoff looks at how Canadian incomes change with age.
A look at the return on hassle spectrum when it comes to investing. Count me as a hands-off, no hassle type of investor.
Ben Felix explains structured notes and says when you’re having dinner with lions make sure you’re at the table and not on the menu. Point taken:
My Own Advisor Mark Seed says to watch out for RRSP / RRIF taxation.
Norm Rothery catches up with the retirement class of 2000 (subs).
Michael Batnick on the cruel irony of investing:
Investors: “The market feels risky right now. I’ll just park my money in this high-yield savings account earning 5% and wait for the dust to settle.”
Stock market: LOL
A Wealth of Common Sense blogger Ben Carlson says everyone has their own money trauma.
The Evidence Based Investor asks, do you have enough money already?
Finally, Jaclyn Cecereu does a terrific job breaking down CPP contributions and benefits.
Enjoy the rest of your weekend, everyone!
Newly retired and decreased my spending to see how low I could go. Fear of spending money is a real problem, but there is something to be said for feeling secure with a large nest egg and giving it all to charity.
could you do a piece on Universal Insurance pla
ns for retirees! Are they a good idea/not!
While I respect anyone’s decision to do what they want with their own money, my husband and I will be giving with a warm hand. I find it sad that my FIL is sitting on piles of cash and trying to devise ways to pass on this inheritance without incurring probate fees etc. when he could have gifted his grandkids with post-secondary or with downpayments on homes (even if he gave away half, he’d still have more than enough even if he needed expensive LTC) . While my kids are too young & don’t need anything, he has two grandsons in their late 20s – one of which had to take out student loans for school – who could have benefitted greatly from a small portion of the money to give them help at the time in their lives that they need it the most.
Instead, he will die like Uncle Scrooge on his piles of money and my husband and his brother will get it all when he passes (which we plan to use to distribute to the kids as we won’t need it). He could have really changed his grandson’s lives and received gratitude and the knowledge that he passed on an excellent legacy by helping them. Instead my husband will get all of the credit for distributing the wealth. I just find it so sad but it’s his choice.
Keep in mind your last sentence ,it is his choice and money not yours .
The poster mentioned that twice, clearly they know.
Of course, that will go both ways: it will be his grandson’s choice to not to prioritize helping or even visiting Scrooge McDuck as they will be struggling to make ends meet. You reap what you sow.
It was the great Willie Nelson who said ‘Yesterday’s dead, And tomorrow is blind, So I live life, One day at a time’. I’ve seen (literally many) people retire only to pass away shortly afterwards, having never realized the very dreams they spent their working lives saving towards. I am a classic oversaver/underspender, and I’m trying to course correct and enjoy more of my days while I still have them.
I am also an oversaver/underspender. I started saving and investing in my early 20’s. I am a high net worth individual but I do not feel rich. I am single with no children and nobody to leave it to. My friends call me frugal.
I am in my 70’s. Time is running out. I hope I can have some fun, spend more and stop worrying before it’s too late.
There’s a simple solution to too much money in retirement: Buy a sailboat (or other expensive hobby). You’ll instantly have not enough time to use it and not enough money to spend on it 😀
With house prices so high in most urban areas of Canada, we gave a significant down payment to one of our sons so that he could afford to buy a place. We’ll do the same with the other son when he’s ready to buy. That eliminated the “risk” of us not spending enough in retirement.
Here is the opposite side of the coin, my in-laws never saved, still have a mortgage in their late 80’s, never planned for long term health care for themselves, still do not own their vehicle, never helped any of their four kids with student loans never helped with any of their 7 grandchildren or 7 great grandchildren and now their comments to my wife and her 3 siblings about the debt load they still have “well that is your problem”. This is a family that never talked about finance and everyone assumed things were okay…lo and behold they are not. They spent everything they earned and bought the rest on credit.
The stress this has placed on the family is unbelievable. Give me a saver, even an over saver any day!
I’m all for spending pre-retirement like you would in retirement…generally advocate living on less during your working years SO you can retire preoperly!
Good post.
Not sure if I missed a earlier columnAny advise on the best way you would gift a grandchild some money like a RESP or trust fund, just wondering the best ways to set them up
As well is there a way to cancell any of the gifted money if a grandchild turned out to be a bad seed?
Getting the right balance between enjoyment now vs enjoyment later is a challenge I’ve faced, and I’ve swung between the two extremes in the past. Consumption smoothing is a great concept, but its hard to plan for when the future is so uncertain.
My parents both passed by the time I was 18, so I have a visceral understanding that life is fleeting, but intellectually I know that I have a good chance of making it to age 90+. It’s tough.