Spending habits in retirement

21 Apr 2020

Most professionals have worked hard during their working careers, saving for retirement for the last four or five decades, learning how to spend less and save more. Now that retirement is upon them, does this mean that they can finally live in luxury and splurge as a reward for their many years of frugal living?

Retirees tend to go through three cycles in their retirement spending. (Ted Jenkin, CEO oXYGen financial)

•    The first 3-5 years are the celebration or honeymoon phase of retirement. Pensioners tend to overspend during this time. They tick off bucket list items and spend money on travels, enjoying social life and doing things they’ve always wanted to do. Often part of the cash lump sum pay-out gets used for this.
•    The next 10 years or so is the stabilising years. Retirees have settled down and spending has normalised. They are living normal lives and watching their expenditure.
•    The last phase is the 5-mile radius phase. Retirees are probably in their 80’s now and mostly stay closer to home. They don’t travel much, and their expenses are reduced except for increased healthcare expenses.

Here are some guidelines to help you spend your retirement savings wisely. 

    Allocate your spending budget for the first year into a separate account. This way you can keep track of where your money is going and only spend what you can afford. This trial will be the basis of your retirement lifestyle and will indicate what adjustments you need to make to the budget.
    Track your spending with your mobile banking app. You can see daily balances and always know how much you have left in your account without having to visit your bank.
    Don’t buy a flashy new car. Anything that depreciates in value is a liability in retirement. You invest a large sum in a new car and immediately it loses its value and is worth less than what you just paid for it. You have essentially given away some of your retirement savings.
    Invest in learning new skills or refreshing old ones – These skills could result in extra income through a part time job or starting your own business.
    Travelling plans to visit family and friends is always a good investment. But plan your trips so you can fit everyone into your schedule as opposed to travelling several times.
    Invest in activities that are good for your health like joining a tennis club or walking club. Investing in fitness equipment or a gym membership is also a good idea. These activities will improve your health and lead to fewer medical expenses down the line.
    Don’t forget the rainy-day fund. Just because you are retired, doesn’t mean that unforeseen emergencies stop occurring. (Bruce Horovitz – Next Avenue for Forbes.com)

Retirement should be a time of freedom and enjoyment, and with careful planning, you could make it a reality. Speak to your deVere adviser about assisting you in drawing up an annual budget that will sustain you throughout your retirement. They will set up a remote video meeting with you. [email protected]​​​​​​​

Please note, the above is for education purposes only and does not constitute advice. You should always contact your deVere adviser for a personal consultation.

* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.