After a year and a half of retirement life and speaking to dozens of early and traditional retirees, I’ve noticed one very alarming phenomenon.
Retired folks can’t stop saving money! When I ask fellow retirees what they are saving money for, they can’t come up with an answer. Saving money is an unbreakable habit that is robbing retirees of a maximum life of leisure.
I first began exploring the disease of saving money during retirement six months after I left Corporate America in Spring 2012. I already ran all the numbers under multiple different scenarios for months before I pulled the trigger. Yet there I was continuing to save 100% of my passive income streams and another 20-50% of my active income streams six months out.
Instead of living it up after receiving my severance check from 11 years of loyal service, I dumped the entire sum into the stock market in the summer of 2012. I didn’t even use a couple hundred dollars to go celebrate with a friend at a favorite steak house because I felt guilty leaving the workforce so early. The uncertainty of not having a bi-weekly paycheck after 13 years of consecutive work was also disconcerting despite all the planning.
From a financial perspective, investing the severance in 2012 turned out to be a good move because the markets are up 30%+ since. But from a living life perspective, the investment was suboptimal because I got nothing out of the severance except for a slightly higher feeling of financial security. Whenever money grows for too long a period of time without producing anything tangible, I always start thinking what the hell is the point and the spending itch returns.
I’d like to explore how prodigious savers can break our good financial habits in this article. Over saving may not be as serious as going into heavy consumer debt. However, going to the other extreme is not healthy either.
THE TRADITIONAL RETIREE THAT SPURRED ME TO WRITE THIS POST
After serving in the military and the foreign service for over 30 years, a close relative of mine has a lifetime pension that probably pays at least $90,000 a year. His house is paid off and he’s got no other debt. I’m thrilled he will be financially set for the rest of his life yet I’m worried that he’s been too cautious with his spending. Sure he could theoretically blow tens of thousands of dollars upgrading his house with new bathrooms and kitchens, but there’s no need for now.
I began poking at my relative for not spending more over dinner one day. I told him there was no need to save money for retirement since he was already in retirement. Furthermore, there was no need to save money to leave an inheritance since both his kids are well off. “Live it up a little!” I said in between bites at the early bird special local diner.
He and his wife love to go on cruises so I mentioned that instead of booking a 30 day inside cabin cruise with no window for $3,500 a person, go for the room with a balcony for $5,500! He brushed my suggestion away. “An inside cabin is good enough Sam! All we’re doing is sleeping anyway.” Ah, the indomitable responses of a frugal spender.
The reality is I’m projecting what I want for myself onto my relative. If being frugal makes him happy, then I’m happy for him to continue saving so much. What I’m actually not happy about is feeling like I’m not optimizing my money on living life to the fullest. I’ve spoken to many of you super savers who feel the same way.
DELAYING GRATIFICATION A LITTLE TOO LONG
It’s not cool to admit we have wants. The financial crisis taught us that being frugal is the responsible thing to do. But gosh darn it, I’ve got wants too that have been delayed for years! Here are some of my examples. Feel free to share some of your wants in the comments below.
* Car. Moose is now 13 years old with roughly 130,000 miles. I bought him for only $8,500 back in 2005 when he had 78,000 miles. Brand new he cost over $45,000! I love Moose but he’s got a lot of electrical problems as I’ve mentioned in the past. I’d like a new Range Rover Sport, but I feel guilty spending $75,000 cash on a car that I don’t need. I also considered buying a new Nissan Sentra for only $18,000 out the door, but also stopped short largely because I feel I’ll get sick of the car after a year.
Based on the comments about buying an SUV as a tax deduction for my business, I’m encouraged to “find happiness elsewhere” even though I’m primarily concerned about safety. I thought the tax deduction post would help spur me to finally upgrade, but instead, I feel as tightfisted as ever. I’ve made a decision on what to do which I’ll share in an upcoming post.
* Laptop. I run an online business for goodness sake and I still can’t get myself to upgrade to a new Macbook Pro Retina display 13″ laptop for $1,299! I’ve had my Macbook since 2007 and it works great after I installed another 2GB of RAM a couple years ago. The only problem is that it’s about a pound too heavy and a little thicker than desired compared to the new laptops.
Perhaps part of the reason why I don’t want to upgrade is because I know Apple products sell at such a huge premium to other comparable PCs. At the same time, I don’t want to buy a PC due to the Windows operating system and the plethora of bugs and hackers. All I have to do is wait one more year and Apple will come out with a thinner, faster, more powerful product. I’m also on strike because of how poorly Apple’s stock has done. It’s highly unlikely I’ll be upgrading for another year.
* Sunglasses. It’s literally always sunny here in California and a pair of sunglasses is a necessity. But after losing a pair of $215 pair Maui Jim’s last year, I decided to just buy a cheap $15 pair when I was in Hawaii this past Spring. They look fine and work well with polarized lenses, but the plastic is finally starting to fray. I like these pair of iodized plastic Prada shades for $270 after tax, but I feel absolutely stupid paying 18X more for shades that I might lose, so I don’t.
But what is $270 for an item that is used every single day and looks pretty good? Nothing, especially since I can lose thousands of dollars in the stock market on any given day. Guys don’t have many accessories, and I would hardly call a pair of $270 shades over indulgent compared to the money women spend on shoes, bags, and clothing. I ended up going to Sunglass Hut and buying me a pair. But I’m still thinking about whether to return the shades given it has an awesome 90 day return policy.
* Watches. I’ve been a watch collector ever since I bought my first Kinetic Seiko watch in Kobe, Japan 25 years ago. Now that I’m into diving I’ve been eyeing the latest Panerai Submersible watch. The PAM 502 is a beast that can go down 2,500 meters = 7,500 feet. Of course I’ll never go down that far, but it’s a good looking watch that would be fun to strap over my 3 mm wet suit. The watch costs $12,500 and will last forever.
Spending money on watches is purely an unnecessary luxury given our smartphones tell time just fine. However, luxury watches are always increasing in value. The Rolex Stainless Steel Daytona cost $10,800 back in 2008 and now the retail price is $13,500 if you can get one, for example. Despite my love of watches, I haven’t added to my collection in five years because of the downturn and career change. Now that income has stabilized, perhaps I’ll go waste some money again.
* Vacations. This is the big one which I’ve finally made progress conquering. I always value experiences over things. But for the first 10 years of my working career, I felt bad paying for connecting flights so I always flew direct wherever I went. I didn’t like to pay 50 Euros for the hop-on-hop-off buses so instead I walked for seven hours 90 degree Naples heat. It felt weird spending more than $200 a night for a hotel while carrying a mortgage, so I downgraded to hotels that cost $125 and under.
Now that I have lots of free time I finally decided to stop being so parsimonious on vacation. I ended up spending roughly $20,000 on six weeks of travel in the summer of 2013 and don’t feel a lick of remorse. The memories are magical and I’m willing to spend the same amount to continue experiencing more. Read: The Key To Taking An Expensive Guilt-free Vacation.
THE CURE FOR FINANCIAL HOARDING
Now that I’ve shared with you the main things I feel uncomfortable spending money on, I’d like to discuss some strategies for getting rid of financial hoarding.
1) Research who died at your age or earlier. Although the median lifespan is around 80-84 for men and women, chances are we will die much earlier! And if we die earlier, we are really screwed if we didn’t calculate an earlier life expectancy since we’ll have so much more money left behind. Princess Diana, Marilyn Monroe, and Bob Marley all died at 36, my age now. Holy crap! I suggest you look online for other people who died your age or earlier. It will really galvanize you to stop being so frugal in your ways.
2) Change your life expectancy time frame. I budgeted for a life expectancy of 60 because it helped force me to save a ton and retire early. By retiring before 35, I hope to spend 25 years of freedom before I croak. If I didn’t die at 60, then hurray! Each year beyond 60 is a gift. Once you are financially independent or retired, it’s a good idea to ask yourself how you would spend your money if you only had a year left. Would you buy that Porsche 911 Turbo you’ve always wanted? Would you book a first class ticket to Palau to go scuba diving with whale sharks? Would you take your entire family on a cruise to South America? I sure as hell would on all three. Hopefully all of us have years of good living to come.
3) Old fashioned budgeting. One of the main reasons why retirees continue to save during retirement is due to the irrational fear of going broke. FI/retirees are generally older than the median population and have seen some horrendous economic cycles. Compare FI/retirees with bright-eyed 20-something year olds who have only seen a bull market and the outlook is completely different. The more one budgets and keeps tracks of one’s finances, the more confident they will be in spending more. I know I can live somewhat comfortably off ~$100,000 in passive income in San Francisco, but I continue to save due to potentially having to support more people in the future. It’s because I don’t know exactly how much it costs to support a family of four that I’m afraid to spend all my passive income even though the principal is never touched.
4) Write your list of wants out and see the light. You’ll find that the combined cost of things you realistically want won’t cost you that much money as a percentage of your net worth. Even if it does cost more than you think, once you have the monetary figure you’ll figure out a way to earn more or budget for these items if you truly want them. If I add up the cost of a new car, laptop, sunglasses, watch, and blazer we’re talking anywhere from $30,000 – $110,000 largely depending on what car I get. If I bite the bullet and buy everything, at least I won’t have such cravings for at least another three to five years. Add on the incremental amount of upgrades I want to spend on 10 weeks of vacation a year, and perhaps we’re talking an additional $10,000 – $15,000 a year. Knowing the maximum figure you need to spend is like knowing your maximum downside in an investment. Once you know, you feel more comfortable going forward.
IRRATIONAL FEAR OF GOING BROKE
I have a fear that my online business will go kaput and Big Government will confiscate all my land while causing stocks to crash. Some have questioned why I have such a large CD balance and it’s exactly for these doomsday type scenarios. I don’t want to be illiquid if investment opportunities arise either. Besides, 3.75%-4% is a solid risk free return when the 10-year yield is under 3%.
Even if the doomsday scenario occurs I could still live off my CDs for at least 20 years by withdrawing ~$60,000 a year. Maybe I could live off my CDs forever without touching principal given it spits off ~$35,000 a year in interest income. Money would be tight, but when you’ve got no mortgage and free beaches, ocean, and mountains in Hawaii, life can still be good. Furthermore, health care for a family of four making $40,000 would only cost $1,965 a year thanks to all the ACA subsidies! It’ll just be hard sending the kids to Punahou.
Old habits die hard. If you are a financial hoarder, it’s time to be smarter about spending over your life cycle. Restricting your spending when you are young, only to die with too much is the mirror image of spending too much while you are young, and dying in debt with nothing to leave behind. At the very least take your required minimum distribution (RMBD) by age 70.5 even if you don’t need the money. If you don’t withdraw, the government will slap a nice little penalty and we can’t have that!
RECOMMENDATIONS FOR BUILDING WEALTH
* Manage Your Finances In One Place: One of the best way to become financially independent and being more balanced with your spending habits is by signing up with Personal Capital. They are a free online platform which helps you keep track of your net worth, your budget, and your retirement portfolios. Once you have a good grasp on your finances, you’ll have less of a tendency to hoard because you’ll have a much better idea of where you stand financially.
Before Personal Capital, I had to log into eight different systems to track 25+ difference accounts (brokerage, multiple banks, 401K, etc) to manage my finances. Now, I can just log into Personal Capital to see how my stock accounts are doing and how my net worth is progressing.
The best tool is their Portfolio Fee Analyzer which runs your investment portfolio through its software to see what you are paying. I found out I was paying $1,700 a year in portfolio fees I had no idea I was paying!
Photo: Balandra Bay, La Paz, Mexico, FS. Updated for 2019 and beyond.
Great post, would be nice to see an update years later to see how you feel about the topic today. I am having the same issue right now, checking my investments every day, afraid the market will go down, not spending as I am now chasing the 3 million. Also, I have a hard time to spend money on another vacation after i already took 2 weeks vacations in the year as I feel most people don’t take more than that so why do I need more. Sometimes I can’t recognize if I really want that vacation or just taking it because I can. I am not a person that wants much but when I do these things are usually expensive (property on the beach,winnebago, etc.) and I question if I really need those to be happy. Right now, I am just as happy driving my bicycle or going hiking but a beach property and winnebago have been tempting me.
I came across this article because I was genuinely pondering if I am “oversaving”.
I could upgrade my life & spending in many areas: dining out, fitness, travel, clothing, car, and even spending on home furnishings.
But I have a BIG goal and that is home ownership.
As far as I am concerned I can’t imagine being happier with more (expensive) of any of those things rather than building up my deposit and training myself to live on less so I can pay off my home sooner.
How do I know I have gone too far? Maybe if I am starving, naked or saying no to every invite that comes my way. For now…I feel happy…but this article did help me pause for thought.
I find it fascinating that people tend to categorize themselves as either spenders or savers. I think I’m somewhere in between. I saved aggressively for the first 4-5 years after college to climb out of debt. Since then my savings rate has plummeted. I was probably saving 40% of my after tax income at one point. Today it’s certainly not above 20%, possibly closer to 15%. The areas of saving are considerably different, such as my daughters college fund and stocks. It’s important to me to provide my daughter with a good education and enjoyable childhood. Life is truly a journey, it’s funny how your priorities change over time.
Enjoyed this post. Fortuately (and unfortunatley), if I made a list of things I want it would consist of 1 thing: cars. For the past year, I’ve wanted 2: the new Porsche 911, and the Tesla Model S. Have made the mistake of driving each of them and want them even more. Unfortunately, either one would set me back atleast 90k. While I could “afford” it, I don’t consider myself financially independent yet so spending that much seems extremely foolish. But the amount of time I spend rationalizing and doing various calculations is crazy. Short of boats, high-end cars are a spectacular way to burn cash. I’ve tried to set my sites on more attainable versions of each: maybe a Scien FRS and Volt. Nope- no interest. Can only wish I wanted a 12k watch or 4k cruise instead!
Financial Samurai says
Scion FRS is such good value at only $24,000! But yeah, definitely not the same as a new 911.
If I had a two card side by side garage, I’d be in TROUBLE. Alas, I only have a two car tandem, so one car is all for me.
Ha- I only have room for 1 car now was well. Which helps me stay away from 911s (and also the FRS) cause I need it to be more practical. For the past few years I’ve settled on leasing a BMW since it speaks to my inner car enthusiast while not being ridiculously irrational. Buying ricewise, it doesn’t adhere to your 1/10th of income rule but the lease amount is only about 3% of my monthly gross income. I like the predictability of knowing exactly how much it is each month (inclding maintenance) and that I can just give it back to them after 3 years regardless. Doesn’t seem that bad in the scheme of things. In fact, if I were looking for things to be more frugal on, I’d gladly cut a bunch of other stuff before the car. Weird but true.
I think there is a difference if there are children or grandchildren involved. Anything not spent gets sent down to help out generations to come.
Jen @ The Happy Homeowner says
Brilliant post! I adhere to the mindset that life should be enjoyed now as long as you’re not causing serious damage to your finances or well-being. Within reason, I make today my ‘someday.’ I still save plenty, I have a good cushion in reserves and retirement, and I am constantly seeking passive income opportunities. But, I also travel as much as possible, indulge in my passion for nice cars, and put experiences over any other material object. It’s all about balance!
I guess I can see how someone who has lived frugally most of their life continue to do the same in retirement. But if the retiree is truly satisfied with their life, it’s all good. If the retiree has enough money and is worried to spend it, then it might be a problem. I think with a good size pension, your friend really should relax the purse strings. Although, even if I had the money, I wouldn’t necessarily splurge on fancy restaurants, watches and stuff like that as it is just not my thing. But yeah I’d like to enjoy life…why not? That’s what you saved for right?
Mark Ferguson says
To be financially healthy I think you can’t be afraid to spend money. I’m a big loa guy and if you are afraid to spend money it usually means you are scared you can’t make it back or will run out if retired. Both of those ideas are bad news in my opinion.
Interesting post, and good questions. Well, I’m not retired and it isn’t imminent for me, so my perspective is one of a person working toward retirement.
With that, I’d say that it’s probably those good overall habits that get a person to the success of retirement or early retirement – and it’s a great thing that good habits are apparently hard to break! The retiree you mentioned is a good example of that. Of course, since we live once, it’s of course important to fully enjoy every day – even if that means spending a little bit.
Projecting myself to that situation, I would think about any guilt I could have thinking about how others in different places would be thankful for even the basics. If I didn’t have much guilt, then I’d spend. For example, if my car was super old and I bought a newer yet practical car to replace it, could I feel guilty? No, Probably not. If I replaced it with an upscale newer car, yes I would feel a bit guilty.
Pauline @RFIndependence says
I have decided that any online income was to be spent on the short term for as long as it lasted. So far I make about 3 times what I need for normal living so it leaves quite some breathing room for luxuries. Just got a new laptop and spent 10 weeks in Europe :). But old habits do die hard.
Financial Samurai says
I’m very impressed you can live off $1,000 – $2,000 a month. Keep up the good work!
Beers are $0.40 here :)
I’ve be able to increase my savings rate to 50% and am well on track to meet/exceed my goals.
My dream would to buy a classic porsche and have it restored. I could buy one and not make much of a dent in my net worth, but I just can’t get myself to write that check. Reading this thread has caused me to reconsider.
I think treating yourself is very important.
Saving for the sake of saving makes no sense to me. I have no issues spending money on extravagant things once my “target” savings are achieved.
I do have a Rolex watch that I paid $8600 for. I believe right now I could ebay it for $10-11k.
Right watches (Patek, Rolex) don’t depreciate, they appreciate if anything.
I am actually in exactly the same boat with MBP.. mine is from 2006 or 2007, and it still works great (although a bit slower then what I would hope). I keep hoping that it will break and it will give me an excuse to buy the one with retina display.
Sunglasses are such a tiny expense.. I would not think twice about spending $200-400 on them. They will last several years. Btw, a lot of vision insurance will cover portion of the costs.
Vacation is not even a question here.. if we can’t drop decent $ on vacation, why are we saving???
Car is the only thing i keep going back and force with it. Right now we have one car, we got it new 1.5 years ago. 1.9% loan from penfed.. you can’t really beat it. Typically i buy them 1-2 years old from an auction, but in your case, as you like to keep them for 10+ years. Treat yourself!
Financial Samurai says
Which Rolex did you end up buying? It’s amazing how luxury watches continue to just go up every year in terms of asking price.
I got the SS daytona.
The decision to withdraw from your principal needs to weigh the importance what will be purchased with that money (i.e., fancy indulgence, experience, every day expenses, etc) vs. what interest could be gained off that withdrawal. Further, this needs to be considered within the context of one’s personal situation (i.e., age, life expectancy, size of the proverbial “nut”).
Taking a withdrawal from principal immediately reduces income generating potential…which is the thing that enables someone to retire early and maintain the lifestyle they’ve decided to life.
Good luck to all with this endeavor.
Great post and too true. Just like the Millionaire Next Door book, since it polled all the millionaires that came for the free food, that’s how it concluded they were all savers. That’s how they got there.
Car – no (depreciating)
Laptop – yes (depreciating but used daily)
Sunglasses – yes
Vacation – yes, if you will enjoy it.
Big ticket depreciating items need to be really thought over well for value/use. Small ticket, eh, go ahead. If you’re saving 50%+ of income, enjoy it on the small things.
Now if you really want to cure your saving habit, go buy a boat!
Bryce @ Save and Conquer says
My mom is 86, a multimillionaire, with annual income over $100k through Social Security and a pension. Her expenses are probably around $24k/year. Her biggest kick is taking her little dog for walks around the duck pond in the trailer park she lives in. She was raised through the Great Depression and is extremely frugal. She has no desire to spend money on herself. Much of her furniture is older than I am (57). One of my brothers replaced her old CRT television with a flat screen earlier this year. She was thankful, but doesn’t watch it. Her second biggest kick is to give large amounts of money to charities she supports, like scholarships at UC Berkeley (her alma mater), as well as supporting my older brother’s kids through college (she stopped supporting the one who dropped out). We don’t try to tell her how to spend her money. She is happy doing what she is doing. Who are we to tell her otherwise?
Financial Samurai says
I’m impressed she is a multi-millionaire and lives in a trailer park!
Can I play devil’s advocate for a second? Would you tell her what to do with her money otherwise if she was spending huge amounts of money on herself and others who were not family? Would you be OK if she donated all her money to UC Berkeley?
Sam, you really put yourself out there in this post. Thank you for sharing. Spend less time worrying about money and try to enjoy your life. I hope you fine your way (or at least a girlfriend). I will link to this post the next time I hear someone suggest early retirement…seems like a sad existence. Keep on smiling bud, and next time you’re in New York, drinks on me, sounds like you need one.
Financial Samurai says
Sounds good. I’ll take you up on the drink next time. Yeah, early retirement is kinda sad sometimes. Too much freedom and time to pontificate. I sometimes long for the pressures and stress of work!
What site are you running that would link this post? I’ll come check it out.