The struggle to go from saving to spending in retirement
You might be surprised to hear about a fairly common problem with which some recent retirees struggle: How hard it is to flip the switch from saving for retirement to spending in retirement. What?! You might think that would be the easy part! Although I am not retired yet, I have had a small taste of this “discomfort”. My son started college three years ago and it was time to start drawing on that wonderful RESP we had been working on for 20 years. For the first several months I was helping with his expenses from our household cashflow, leaving the RESP untouched. Just couldn’t bring myself to use it. Until my husband found out. “That’s what the RESP is for!”. And he was right. So we are now happily helping with education costs from the RESP and not feeling the pinch in our personal cashflow.
The source of the retirement problem seems to be that many recent retirees have a fear of running out of money. Fewer and fewer retirees can depend on a private, guaranteed pension plan. They are instead counting on government benefits plus their own personal savings to meet their retirement expenses. During times of market volatility (which, less face it, seems to be most of the time these days), drawing an income from your RRSP/RRIF can feel uncomfortable to start. A great way to combat this fear is having a financial planner lay out a plan so you can see the amount of money you can reasonably spend, and compare that to your known, current expenses. Most likely, as long as you have saved well, you will realize you are able to safely spend without placing any risk on your finances.
Another group who struggle to make the switch are people who enjoy saving for the sense of accomplishment they get every time they make that contribution to their retirement. Making that switch to spending for some, means they are losing that sense of accomplishment.
Finally, there are people who are just frugal in nature and do not enjoy spending money on themselves. I have found this is more of an issue with the more senior generation who lived through the depression. There are a few of them still out there, saving for all their worth, hoping to leave as much as they can for their children.
Recently, the current retirees are less likely to do without in order to leave more for the kids. More often, I am hearing that they will spend and be comfortable, with whatever is left, if anything, going to the next generation. Take that as a heads up for the next generation!
All those years of diligent saving were done so that once you retired you could live comfortably and not have to worry about what you can and can't buy. The best way to enjoy your retirement and the savings you have accumulated is knowing how much you can safely spend without having to worry about running out.
What do you think? We would love to hear your comments on this topic. For ideas from the bigger retirement community on how to switch from saving to spending check out the Globe and Mail forum here.