Retirement is a new chapter, and for many, it starts with a learning curve. No longer having a steady paycheck to rely on is a massive change, which can inadvertently lead to overspending. However, since you’re no longer working, recouping these expenses can be challenging — if not impossible. Therefore, it’s important to try to start retirement with a clear knowledge of exactly how much money you have, along with a comprehensive spending plan.
Sometimes easier said than done, it can be hard to resist overspending when you have plenty of newfound time on your hands. If you’re not used to sticking to a budget, this can be even more challenging.
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“I often encounter clients who face challenges due to overspending during their early retirement years,” said Scott Neu, AIF, financial advisor at Reinke Gray Wealth Management. “Many retirees initially indulge in major purchases or lavish spending, without fully considering the long-term implications.”
He said this can have major consequences.
“These decisions can lead to financial stress later on, as savings are depleted faster than anticipated, and lifestyle adjustments become necessary,” he said.
Of course, overspending can take many different forms. Some retirees leave the workforce and treat themselves to indulgences, while others shower loved ones with financial gifts.
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Extensive Travel
“I worked with a client who retired early and decided to travel extensively during the first few years of retirement,” Neu said. “While enjoyable, this lifestyle choice reduced their savings quicker than planned.”
Post-travel, they have incredible memories to look back on but lack the financial stability they would’ve had without jet-setting.
“They now face the challenge of scaling back their expenses and carefully managing their remaining assets to ensure they last throughout retirement,” he said.
When it comes to spending, he said retirees should enjoy themselves, while keeping their spending in check.
“My advice for new retirees or those planning to retire soon is to strike a balance between enjoying retirement and maintaining financial stability,” he said. “Setting realistic budgets, regularly reviewing financial goals and seeking professional guidance can help retirees avoid regretful overspending early in retirement and ensure they have a secure financial future ahead.”
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Financially Supporting Adult Children
“A new client of mine is helping their youngest daughter with her wedding and adding $2,000 per month, above and beyond their required spending,” said Steve Charlton, certified financial fiduciary and founder of Wisdom Financial. “They have already come to a tipping point that they will have an issue with income if they live longer than 12 years in retirement.”
He said the client needed to make quick — and potentially major — changes to get back on track.
“I had to tell them they need to have a family meeting and explain to their kids they cannot continue to support them in the way they are currently and still survive financially — unless the kids want to have them move in, as the client has an early onset of dementia.”
He said it’s not uncommon for new retirees to make poor choices with their money.
“One of the many regrets that retirees often have in their later years of retirement often comes from their choices in their money management from the first five years of their retirement distribution lifecycle,” he said. “Similar to what occurs with those that win the lottery and end up going bankrupt.”
He said the main culprit of this decision is not having the assistance of a retirement income specialist.
“They have been spenders for their entire working careers and haven’t learned yet they are in a different phase of their financial lives,” he said. “And these issues are not always from frivolous purchases.”
Instead, he said many retirees overspend in early retirement without actually indulging themselves.
“More often than not they are helping their children, paying off debt, or not sure of how the taxation works on their IRA dollars,” he said.
He again emphasized the importance of having a financial advisor who is a retirement preservation and distribution specialist.
“Your accumulation specialist got you here,” he said. “Now it’s time to hand off the baton and get them to life expectancy safely, efficiently and enjoy their retirement lives with complete peace of mind.”
Even if you don’t think you need regular help from a financial professional, it could help to meet with one periodically to make sure your spending is on track. After all, the last thing you want is to run out of money in retirement, so preserving your nest egg is a must.
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This article originally appeared on GOBankingRates.com: I’m Retired and Regret Overspending in My Early Retirement Years — Here’s Why
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