Do emotions control aspects of your money habits? Even if we don’t like to admit it, our spending and saving habits are influenced by our emotions. We all probably like to think that we are reasonable when it comes to money, but… Reason often has little to do with it.
Perhaps you have engaged in some retail therapy. Ever bought something you didn’t need because it made you feel good? Lifted your spirits. Maybe you tried on a dress, or a pair of shoes, that was out of your price range but looked so good on, that you couldn’t resist. Just wearing your new item was enough to make you feel better about yourself.
Maybe you’ve played keeping up with the JONES’. For instance, did you need a new cell phone last time you upgraded, or did you purchase it because all your friends had one? Maybe you got a swimming pool because your neighbor did. Or, did you copy your co-worker’s vacation, because they had such a good time on it?
You might have even made some impulse purchases. You went to Best Buy for a memory card but walked out with a new camera. It happens. The euphoria of a purchase, of a “good deal,” is intoxicating.
If emotions affect our everyday spending habits so much, what happens to your emotions with money when you retire?
Retirement is typically thought of as a time to celebrate. People ask questions like when is the right time, do you have enough money, and how to make that money last. Many are excited and anxious about the change. But the emotions around the transition and the enormous challenge it can be is often overlooked.
Retirement might feel like a change in your identity. People often question their self-worth. Believe it or not, retirement triggers its own grief process. Grief is a normal emotion when facing retirement. It’s as if you are mourning the death of your working life. (Source: No Longer Awkward by Amy Florian) While you may be happy about no longer having to work, you might also feel rudderless, which can be disconcerting.
Now, think about this—retirement is an emotion-filled process that might send you reeling all on its own…and you still have to figure out how to manage your money.
Talk about overwhelming.
Your money is likely all in one (or a few) buckets. Lumps sums that are larger than you have ever seen at one time, in one place. More than you’ve made in any one year of your life, all at once. That can trigger fear and other emotions.
You have to figure out how to get your hands on that money. Make cashflow, that will mimic your years of paychecks, from it. Deduct taxes. Invest it appropriately to keep up with inflation. Make it last through the end of your lifetime. And then you have to decide, do you want to leave your family and friends a legacy, give to charity, etc.
Your expenses are also likely to increase in retirement. Get more complex. Just the aspect of health care alone. Which Medicare supplement do you need, what Part D plan fits you? And then comes the expected changes in health as you age, which typically mean more medications and care.
There’s probably no special “emergency fund” for when your furnace goes out or the tree that falls through your roof. Unless you decide to go back to work in some capacity, you will never again be adding to your bucket.
You’ve trained yourself, up to this point, to save. For many, retirement saving wasn’t something you thought much about. Perhaps your boss handed you a packet and application after your probationary period, and you signed up because it was something you were supposed to do. It was easy.
You socked that money away on autopilot. The 401(K) retirement "plan" had its choices; you might have looked at a balance a few times a year, but how much did you really think about it? Retirement can be a significant change.
You were on cruise control, autopilot. Then suddenly your hands are on the wheel, your foot on the pedals, and all the decisions are yours.
Now, in retirement, you have to go against what you’ve trained yourself to do all these years. You have to start spending that nest egg you’ve spent a lifetime building. You have to take from that large balance that you’ve grown through years of working. It may feel wrong like you’re going against what you should. And, you have to do your spending consciously, making sure you understand the impact of your decisions.
A dream vacation is fun, but if it takes an entire month of your budgeted retirement cashflow, is it worth it? You are going to have the biggest, longest-view budgeting task of your life, making that money last your entire lifetime.
Wouldn’t it be easier with a little help? A financial planner can help you decide how much you can spend, and identify your priorities to make choices easier. And an asset manager can help you invest your dollars to match those goals and priorities. Whether you're intimidated, or just don't want to do it yourself,