Spending In Retirement

I’m in Amsterdam for the week and was contemplating how to structure my budget and spending. Should I continue to budget as I have been doing the past few years? Should I spend freely from my disposable income? Spending in retirement takes some getting used to. There are no strict parameters, no concrete financial goals, and usually no debt pressures.

Budgeting In Retirement

I continue to budget using YNAB. My income sources are my AirBnb income, work income, and investment income.

Budgeting helps me stretch my dollars further, if nothing else. I’m a spendy little fucker otherwise; frugality has never been in my blood.

The easiest budgeting method in retirement is to spend whatever is left over after you cover your household overhead.

The Financial Freedom Of Retirement

I suppose the whole point of being retired was to have financial freedom. The freedom to spend without committing the majority of the dollars to debt and retirement.

Enjoying this freedom is incredibly worthwhile. I’m still getting used to it because for the past 5 years I’ve been budgeting every single penny.

Spending in retirement doesn’t have to be complicated. If the basic household expenses are covered through investment income then a little side-income can cover any elective spending.

Others may choose to work a few years longer and invest enough that their retirement income completely covers both their necessary and elective spending.

Spending In Retirement

How should one spend in retirement? It’s good to loosen the reins eventually. Continuing to put emphasis on budgeting will distract us from other more enjoyable mental tasks.

Spending in retirement will be lower.

In retirement one should spend within their means.

It doesn’t make much sense to work 80-hour weeks during residency just to go on to working the same crazy schedule as an attending. And so it doesn’t make sense to continue being excessively frugal after reaching one’s financial goals.

Traditional personal finance teaches the consumer to spend below their means in order to save for retirement. On this blog I express that healthcare professionals should spend far below their means during their wealth accumulation phase.

Utility Of Saving

For healthcare professionals debt is often one of the largest spending categories during their wealth accumulation phase. A close second are retirement/savings contributions.

Imagine suddenly not having a debt or savings category to worry about. Continuing to save once retired becomes futile.

Utility of Being Frugal

Those who are inherently frugal rarely have financial problems except for when they make excessively conservative investment decisions. They may not understand how a healthcare professional could ever be hurting for money with such high income.

Frugality is a very important skillset to possess. It can be extrapolated to money, time, and resources. It’s far better to develop frugality intentionally as opposed to being frugal bordering on being cheap.

What’s the utility of being frugal in retirement? Without specific financial goals in retirement it’s a wasted effort. If there is more money than you know what to do with then it might be better to start giving it away.

Financial Goals In Retirement

Spending in retirement can be more of a conundrum when one decides to set financial goals. It might be saving for a larger purchase such as a car or a house.

Hopefully to the reader of this blog, retirement isn’t a final destination. Instead it’s when one transitions to having freedom of time and much fewer financial worries.

Imagine wanting to start a business when retired. Suddenly it’s back to budgeting. I figure the person who was able to budget to achieve financial independence early should also be able continue budgeting in retirement if necessary.

The Lean Retiree

Setting financial goals in retirement could be especially important for the lean retiree. This is the person who retires on just enough to cover their basic overhead. Any extra spending in retirement would need to be earned from work.

Some years the investment portfolio will yield higher returns and some years they will be lean. Having a buffer built up for the lean years is a fantastic way to cover the volatility.

In order to build up this buffer any excess investment income would go into a savings account and be used to cover spending in the years when market returns are meager. Budgeting tactics will come in quite handy for this and prevent a turbulent ride in retirement.

Leaving a Legacy

For those of you with families, if you want to leave assets for the next generation then you may need to continue to monitor your spending in retirement.

Your specific draw-down strategy would ensure that there is value left in your portfolio by the time you die.