You can spend 40 years learning how to save and still feel completely unprepared for the moment you are meant to start spending. I see this with successful retirees all the time. Their financial plan says they have enough. Their family tells them to enjoy themselves. Yet spending still feels reckless. The discipline that helped them build wealth is now stopping them from enjoying it. Many retirees do not have a money problem. They have a permission problem.
Money Is Not Always Just Money
Behavioural economists call this mental accounting. We naturally give different pools of money different jobs.
Holiday money feels different from grocery money. A bonus feels different from salary. Retirement savings can feel almost untouchable, even when spending that money is exactly what it was saved for.
That is not entirely logical, but it is very human. The labels we give money, where it came from and what we believe it is responsible for can all affect our willingness to spend it.
Rather than fighting that instinct, I think we can use it.
$1,070,000 or $990,000 Plus $80,000?
One story I often share involves an accountant selling his home.
On the Friday, he received an offer of $990,000. He was perfectly happy with it but decided to wait over the weekend before accepting.
The same buyers then increased their offer Monday to $1,070,000. Financially, every dollar was identical. Psychologically, the additional $80,000 felt completely different. It was unexpected upside. A windfall.
So what did he do. You guessed it, he bought the impractical car of his dreams with the extra $80,000.
He admits that if he had received the full offer of $1,070,000 on the Friday, he probably would never have bought the car. The entire amount would have felt too important to spend. There is no financial difference between $1,070,000 and $990,000 plus $80,000.
Psychologically, however, the difference can be enormous.
Could we use the same principle to help retirees enjoy their money with greater confidence? I think we can.
Creating a Happiness Fund
The first step is to work out what is reasonably required to support your planned spending throughout retirement. That means allowing for the lifestyle you want, the risks you face and the flexibility you want to preserve. This is the money responsible for your long-term financial security.
But what if careful planning shows you have more than you are likely to need?
Imagine we complete your retirement planning and discover that you have $250,000 more than is reasonably required to fund your planned lifetime spending. Instead of leaving that money buried inside your retirement portfolio, we could give it a different job. Put it in a separate account, or clearly identify it as a distinct part of your portfolio.
Then give it a name. Call it the Happiness Fund. The Generosity Fund. The Family Experiences Fund. Or simply the Permission-to-Spend Fund. The name matters because the purpose matters.
Instead of asking, “How can we avoid spending this money?” ask: “What could this money do to improve your life?”
Permission to Say Yes
A Happiness Fund is not simply a bucket-list account. It is money that gives you permission to say yes.
- Yes to taking the whole family away for a week.
- Yes to travelling while you are still fit enough to enjoy it.
- Yes to making the house more comfortable for the next stage of life.
- Yes to helping your children or grandchildren when it could make a meaningful difference.
- Yes to creating memories instead of merely preserving numbers on a statement.
The right answer will be different for everyone. It might involve travel, family, generosity, comfort or finally doing something you have postponed for years.
The important question is not simply, “What could we buy?” It is, “What experiences, relationships or opportunities would we regret missing?”
Careful Planning Comes First
Growing Life With Wealth
The goal is not to die with the smallest possible bank balance. Nor is it to spend simply for the sake of spending. The goal is to enjoy your wealth with confidence, knowing the important things have already been taken care of.
For many retirees, the greatest value of financial planning is not discovering how much they can accumulate. It is discovering what their wealth now allows them to do. We often say that the best financial advice is not only about growing wealth for life. It is about growing life with wealth.
So, if your retirement plan keeps projecting that you will finish life with considerably more than you need, it may be worth asking your adviser a different question:
“How much of our money is responsible for our security, and how much could safely become our Happiness Fund?”
– Written by Ben Brinkerhoff
Head of Advice at Consilium
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