When Will You Start Spending It All?

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Imagine this…

You’ve saved and invested wisely your whole life. You cut coupons when you were younger… and maybe you still do. You set up college savings plans for your kids, even if none of them went.

You paid off your mortgage well before you retired because you made that extra payment every year or took out a 15-year loan. You realized at a very young age that interest, even if tax-deductible, is still money going in someone else’s pocket.

Now you’re in your 50s or 60s, or maybe even in your 70s. You’ve got a nice pile of cash in the bank, investments that are throwing off income and capital gains, some rental properties, huge equity in your home, and a couple of nice cars in the driveway. Your debt is almost nonexistent aside from credit card debt – which you pay off every month, of course.

So when does the fun begin?

For many people, the fun never begins. Instead, a deep-seated fear rules the roost. It’s the fear of going broke, outliving your money, having too much fun or leaving your heirs a little bit of money instead of a lot of money.

What’s the point? Why did you work so hard all your life to not enjoy the fruits of your labor?

Sure, your kids are important, and leaving them something is a great idea. But aside from that, why would you live a depressed life when your last five, 10, 20 or 30 years could be beyond great?

I spent the weekend with some very good friends of mine. They asked me for some investment advice. He’s done well – very well. So has she. They have lots of money and very little debt, and now they want to enjoy life.

However, they just can’t pull the trigger on having fun. They’re afraid they’ll outlive their cash – even though they won’t. Even if they earn 4% on their money, they will leave this world with more money than they have today. If they earn nothing at all, they still will not run out of money while living a comparable or even better lifestyle. Yet they are still fearful.

This irrational fear is not grounded in logic. It’s emotional. They are afraid of the unknown. Sure, this fear is common – but anyone who has a foundation as strong as my friends’, barring they make a mistake of giant proportions while everyone else doesn’t, is going to be just fine.

You didn’t get to where you are by being stupid with your money, so why do you think you’ll start being dumb now?

The cost of healthcare will not bankrupt you if you have health insurance or are a step away from Medicare. It’s much more of a factor if you’re in your 40s and lose your job or access to care. When you’re in your 50s or 60s and have money, trust me, you also have healthcare coverage!

My friends’ irrational fear goes one step further: They want to live off only their investment income and not their principal.

How’s that again?

They have kids who are doing fine – not great, but not badly either. They’ll be able to leave each of their two children more than a few hundred thousand dollars. If they want to leave them more, they can do that too… but it will come at their expense.

Is it selfish to enjoy the fruits of your labor when you are dealing with fewer obligations, less stress and less outgo of cash? Apparently it feels that way for many people despite their secure financial positions.

But it turns out that many retirees spend much less than they think they will need in retirement – almost 34% less, according to a study by T. Rowe Price.

How are you preparing to spend your retirement? Are you going to have fun, or are you going to be the victim of media fearmongering?

It’s your choice.

Good investing,

Karim

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