The Mental Mistakes We Make With Retirement Spending

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gaspr
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The Mental Mistakes We Make With Retirement Spending

Post by gaspr »

I've always liked the writing of Meir Statman

https://www.wsj.com/articles/the-mental ... 1492999921

Your thoughts?
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Re: The Mental Mistakes We Make With Retirement Spending

Post by SQRT »

Thanks for posting. A good article. It is hard to loosen the spending purse strings but looks like I am succeeding. Agree that many people are too conservative.
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Re: The Mental Mistakes We Make With Retirement Spending

Post by kcowan »

I think it is a sad reflection of the inability of people to enjoy the fruits of their labour. I suppose I should be happy that we are not afflicted by such guilt!
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Re: The Mental Mistakes We Make With Retirement Spending

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kcowan wrote: 26 May 2017 08:45 I think it is a sad reflection of the inability of people to enjoy the fruits of their labour. I suppose I should be happy that we are not afflicted by such guilt!
Agree but I think it isn't always "guilt" more often just an attitude that spending money is less "satisfying" than watching it pile up.
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Re: The Mental Mistakes We Make With Retirement Spending

Post by gaspr »

Or perhaps it is fear. I know quite a few oldtimers who remember the hard times so vividly, that they cannot spend freely...always thinking that they may need that extra cash some day.
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Re: The Mental Mistakes We Make With Retirement Spending

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I have been very, very guilty of this miserly attitude in the past. However, changing life circumstances and the threat of government interference with our nest egg has caused me to have a rethink in the past year or so. As in the example in the article, I recently shocked everyone by stumping up the money for biz class on our trip to Europe for instance. Not 5 years ago I would have gone as cargo... :o)

Perhaps this change in attitude is also a result of the self education in investing that I am giving myself on this site and others and through copious reading. Once you realize that money invested wisely will not disappear overnight it takes away some of the unease and uncertainty about the future and that allows for better life choices.
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Re: The Mental Mistakes We Make With Retirement Spending

Post by izzy »

So,if in other peoples judgement ,one can afford to eat prime rib every day,one should do so? Even if one prefers hamburger? At age 75 one can statistically afford to spend in the assumption that one will only live another 10 years or so but what if I am one of the few to live to 100 or more? The mindset that enabled one to save successfully for retirement is not usually associated with unnecessary extravagance or "keeping up with the neighbours"! It IS possible to leave any resulting surplus to charity you know!
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Re: The Mental Mistakes We Make With Retirement Spending

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Koogie wrote: 26 May 2017 10:25As in the example in the article, I recently shocked everyone by stumping up the money for biz class on our trip to Europe for instance. Not 5 years ago I would have gone as cargo... :o)
Our travel agent found us a deal with BA that got us flat beds to Europe for $2700 each return. We get to Amsterdam instead of Berlin and return from NIce. We asked what it would cost to get to Berlin. She said $5600. So we are taking Air Berlin for another $340.

We do spend extra for comfort now. But I think it just becomes more essential. Not as flexible as when we were younger.
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Re: The Mental Mistakes We Make With Retirement Spending

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kcowan wrote: 26 May 2017 11:00
Koogie wrote: 26 May 2017 10:25As in the example in the article, I recently shocked everyone by stumping up the money for biz class on our trip to Europe for instance. Not 5 years ago I would have gone as cargo... :o)
Our travel agent found us a deal with BA that got us flat beds to Europe for $2700 each return. We get to Amsterdam instead of Berlin and return from NIce. We asked what it would cost to get to Berlin. She said $5600. So we are taking Air Berlin for another $340.

We do spend extra for comfort now. But I think it just becomes more essential. Not as flexible as when we were younger.
Good on you. Business class is an excellent value in my opinion. It saves 2 days of feeling like crap - one on each end of the trip and is actually enjoyable vs. the cramped (unsafe because of lack of blood circulation in my opinion) back of the bus. Add in the lounges, priority security clearance and free airport stays that are sometimes added in (think Rouge flights out of Canada to beyond the U.S.) and it makes sense to splurge. Even Asia can be had for under $4000 sometimes.

Enjoy your trip!

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Re: The Mental Mistakes We Make With Retirement Spending

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gaspr wrote: 26 May 2017 10:03 Or perhaps it is fear. I know quite a few oldtimers who remember the hard times so vividly, that they cannot spend freely...always thinking that they may need that extra cash some day.
Good point.
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Re: The Mental Mistakes We Make With Retirement Spending

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kcowan wrote: 26 May 2017 11:00
Koogie wrote: 26 May 2017 10:25As in the example in the article, I recently shocked everyone by stumping up the money for biz class on our trip to Europe for instance. Not 5 years ago I would have gone as cargo... :o)
Our travel agent found us a deal with BA that got us flat beds to Europe for $2700 each return. We get to Amsterdam instead of Berlin and return from NIce. We asked what it would cost to get to Berlin. She said $5600. So we are taking Air Berlin for another $340.

We do spend extra for comfort now. But I think it just becomes more essential. Not as flexible as when we were younger.
We spend for lie down seats if necessary, but my lovely wife just booked two business class lie down seats to Viet Nam using Aeroplan points. Just $166 for taxes. Would have cost at least $10-15k otherwise.
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Re: The Mental Mistakes We Make With Retirement Spending

Post by cannew »

We reached the point where our income exceeded our expenses some time ago and we still don't spend all the income. Most is reinvested which continues to grow the income.

Could we spend much more? Certainly, but in our mid-70's we don't need a lot of new clothes, appliances, cars, jewelry or even more trips. We do spend 3-4 months in AZ during the winter and again don't spend much down there because we are there to enjoy ourselves with others. We have activities, day trips, group meals, going to Park Sales just to see what people are selling that we don't need and just sitting around the pool enjoying the weather.

We even enjoy knowing that if we do want to make a large purchase we can, even if we don't. As a side note we didn't deprive ourselves when we were younger but still managed to become financially satisfied in retirement. Life and enjoying it is not just about spending.
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Re: The Mental Mistakes We Make With Retirement Spending

Post by hamor »

Y'all realize that an average Canadian (or American) would puke reading your diatribes about how hard it is for you to part with all your money..?
"Speculation is an effort, probably unsuccessfully, to turn a little money into a lot. Investment is an effort, which should be successful, to prevent a lot of money from becoming a little." Fred Schwed " Where are the Customers’ Yachts?"
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Re: The Mental Mistakes We Make With Retirement Spending

Post by BRIAN5000 »

kcowan wrote: 26 May 2017 11:00
Koogie wrote: 26 May 2017 10:25As in the example in the article, I recently shocked everyone by stumping up the money for biz class on our trip to Europe for instance. Not 5 years ago I would have gone as cargo... :o)
Our travel agent found us a deal with BA that got us flat beds to Europe for $2700 each return. We get to Amsterdam instead of Berlin and return from NIce. We asked what it would cost to get to Berlin. She said $5600. So we are taking Air Berlin for another $340.

We do spend extra for comfort now. But I think it just becomes more essential. Not as flexible as when we were younger.
These numbers are foreign to me. We just did and 18 day Panama cruise that was about $5100 including air + excursions most we've ever spent on a trip so far. I have budgeted $10,000 a year for the next 10 years and we want to do 2-3 trips per year. May have to increase budget?
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Re: The Mental Mistakes We Make With Retirement Spending

Post by kcowan »

Yes Brian. Excursion pricing is a whole different beast than going for a month to see what we desire to see.

Similarly Dan, comparing Aeroplan trips to Air Canada rates is really not a fair comparison. If you have some flexibility, ask your travel agent to find the best rate. We are going BA to Europe because they had a special. AC did not. BA, KLM and Lufthansa are all viable carriers to Europe.

And Vueling has great connector flights once you get there.
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Re: The Mental Mistakes We Make With Retirement Spending

Post by couponstrip »

I can't find it now, but the "spend only dividends/fixed income" vs sell assets debate took place on a dividend thread some years ago. Many, right here on this board, indicated that it had always been their goal to save enough so that dividends/fixed income could fund their lifestyle in retirement and they would never dip into capital.

The argument against this is that you have to save a LOT more and work a LOT longer, or have a much less luxurious lifestyle before and after retirement compared to if you are willing to use all your capital in addition to dividends/fixed income to fund your retirement.

What I found particularly interesting was the counter to my argument; Several indicated that the presence of the nestegg in their account brought them much comfort and peace. One person said they looked at their account balances with much satisfaction almost every day. Selling some of it to spend would make them anxious. The peace was invaluable to them.

It's not what I'm planning to do by any stretch, but I learned in that thread how everyone's relationship with their nestegg is going to be a little different, and that for some, the very presence of the nestegg may have more value than the things it can buy.
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Re: The Mental Mistakes We Make With Retirement Spending

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Many of the activities that I enjoy most, are just not that expensive. For example, walking with the dogs in the woods is free (well, gasoline to get to the edge of the woods). A book on the latest academic research on finance is seldom more than USD 100. Music and videos? Free, courtesy of YouTube. Meeting friends? The price of a coffee at Tim Horton's or Starbucks. University lectures? Free, as long as you don't want formal credit.

Why spend just for the sake of spending? I'd rather give the money away.

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Re: The Mental Mistakes We Make With Retirement Spending

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ghariton wrote: 26 May 2017 17:49 Many of the activities that I enjoy most, are just not that expensive. For example, walking with the dogs in the woods is free (well, gasoline to get to the edge of the woods). A book on the latest academic research on finance is seldom more than USD 100. Music and videos? Free, courtesy of YouTube. Meeting friends? The price of a coffee at Tim Horton's or Starbucks. University lectures? Free, as long as you don't want formal credit.

Why spend just for the sake of spending? I'd rather give the money away.

George
+1 :thumbsup:
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Re: The Mental Mistakes We Make With Retirement Spending

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kcowan wrote: 26 May 2017 17:00 Yes Brian. Excursion pricing is a whole different beast than going for a month to see what we desire to see.

Similarly Dan, comparing Aeroplan trips to Air Canada rates is really not a fair comparison. If you have some flexibility, ask your travel agent to find the best rate. We are going BA to Europe because they had a special. AC did not. BA, KLM and Lufthansa are all viable carriers to Europe.

And Vueling has great connector flights once you get there.
Agree. We paid for business class for our recent trip to Mallorca because of this. But we have found it much easier to use our Aero plan points productively when flying over the pacific. Used Eva Air (Star Alliance) which is excellent. Priced two business class tickets to Ho Chi Minh City and depending on timing would cost $6-10 k each. These cost 330,000 points.

As we have previously discussed, each person decides what these tickets are worth to them and this is often less than the actual price. Nevertheless, I would not take a 14 hour flight in economy so business class is worth a lot to me. Being 6'4" doesn't help.
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Re: The Mental Mistakes We Make With Retirement Spending

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BRIAN5000 wrote: 26 May 2017 16:29
kcowan wrote: 26 May 2017 11:00
Koogie wrote: 26 May 2017 10:25As in the example in the article, I recently shocked everyone by stumping up the money for biz class on our trip to Europe for instance. Not 5 years ago I would have gone as cargo... :o)
Our travel agent found us a deal with BA that got us flat beds to Europe for $2700 each return. We get to Amsterdam instead of Berlin and return from NIce. We asked what it would cost to get to Berlin. She said $5600. So we are taking Air Berlin for another $340.

We do spend extra for comfort now. But I think it just becomes more essential. Not as flexible as when we were younger.
These numbers are foreign to me. We just did and 18 day Panama cruise that was about $5100 including air + excursions most we've ever spent on a trip so far. I have budgeted $10,000 a year for the next 10 years and we want to do 2-3 trips per year. May have to increase budget?
Our travel budget is a lot (order of magnitude) higher than this. Generally, first class and this is very expensive. Of course, obviously, one need not spend this much to enjoy travel. Difficult for us to go back to the days when we spent less on travel. As Keith says, not as flexible now.
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Re: The Mental Mistakes We Make With Retirement Spending

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ghariton wrote: 26 May 2017 17:49 Many of the activities that I enjoy most, are just not that expensive. For example, walking with the dogs in the woods is free (well, gasoline to get to the edge of the woods). A book on the latest academic research on finance is seldom more than USD 100. Music and videos? Free, courtesy of YouTube. Meeting friends? The price of a coffee at Tim Horton's or Starbucks. University lectures? Free, as long as you don't want formal credit.

Why spend just for the sake of spending? I'd rather give the money away.

George
Absolutely!! Like I have said before, you can only spend it or give it away, now or later. I view giving it away in much the same light as spending it. What I have to fight against is the idea of "hoarding" it. Ie simply deriving satisfaction from watching it pile up with no plan for its eventual disposition ( bequest).
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Re: The Mental Mistakes We Make With Retirement Spending

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Our travel budget is a lot (order of magnitude) higher than this. Generally, first class and this is very expensive.
The only time we've spent in first class is when we've wandered through to our seats in the back of the Sardine can. We don't even pay for seat assignment wife says she doesn't care if she sits beside me or not :( so far it hasn't been a problem.

Wife has a few weeks off in July I guess we could do an Alaska cruise ($$) or we could do some hiking around Buntzen Lake and Mt. Baker and some golf if it's not smoking hot.(almost free)
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Re: The Mental Mistakes We Make With Retirement Spending

Post by AltaRed »

Enjoyed the article and can identify with much of it. As per SQRT, it took some time to make the adjustments from saving and investing for retirement to spending* in retirement, and to loosen the purse strings accordingly. Still working on it but have approximately tripled our spending* between the first and 11th year of retirement and getting into that groove. We spend where we get the most satisfaction out of it.

Given we are talking travel at the moment, our vacations are now all planned based on what we want to experience from the ground up, i.e. no packages, and we 'pay up' for the things that provide us comfort and pleasure, e.g. private tours, better hotels and business class air. The take away for us is the standard of experience. We will continue to do these as long as our physical health allows us to enjoy them. Then on to something different.

Charitable giving and gifting has increased substantially as well - as per the 'warm hand rather than a cold one' reference in the linked article. And per the article, I don't care about beating the market. I will tinker some with portfolio allocations and asset selection for the joy of it, but I no longer measure how I do against any benchmark. Life is good.....

* including charitable giving and gifting
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Re: The Mental Mistakes We Make With Retirement Spending

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AltaRed wrote: 27 May 2017 18:00 Enjoyed the article and can identify with much of it. As per SQRT, it took some time to make the adjustments from saving and investing for retirement to spending* in retirement, and to loosen the purse strings accordingly. Still working on it but have approximately tripled our spending* between the first and 11th year of retirement and getting into that groove. We spend where we get the most satisfaction out of it.
Looks like you are doing better at spending than we are. In my case we jumped out of the gate with spending guns blazing. That was 2006. The recession of 2008-2008 sure slowed that down. Since thenwe have gradually upped the spending but probably only 30-40% higher now than in 2010. Plan on going higher over next few years but not crazily so. Obviously only buy things that we enjoy and giving will be a big component.

Travel seems to be one area where it's relatively easy to up the spend. As such we are planning a very expensive trip to France via the QM2 and are including our daughter and SIL. Still enjoy doing things, both expensive and otherwise. Life is very good indeed.
Last edited by SQRT on 30 May 2017 08:20, edited 1 time in total.
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Re: The Mental Mistakes We Make With Retirement Spending

Post by gobsmack »

I am not retired yet but I can certainly see myself having trouble spending money in retirement. I grew up in an environment of financial instability and I certainly feel fairly anxious about my financial situation. Although I am not rich, the size of my bank account is indeed what I use to alleviate this anxiety. Overall, the fear of financial ruin was beneficial in the sense that it compelled me to become an avid saver and extremely averse to debt. On the other hand, it also meant that I have a tendency of maintaining a larger cash position then most people (which hurts the return of the portfolio).

The article was an interesting read because this is an area I probably need to work on. Much like ghariton above, I also derive great joy from fairly inexpensive activities. I am lucky this is the case given that I am not rich. These activities do require free time though, which is usually in short supply when one is employed. In that sense, I sort of envy the people who can derive pleasure from buying a new car or a new phone. It would probably make my life a lot simple if that were my case.
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