Fear of Spending

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When transitioning from an earned income stream to managing on Social Security and savings, fear of spending can be a problem to retirees. Our faulty model of how to draw down the retirement savings caused mine. Here's what we did about it.

After spending a lifetime earning, saving and worrying about money, some of us have a big adjustment to make. We may develop a fear of spending. When all there is coming in is the Social Security checks and a chunk of what you’ve struggled to save, it’s hard to part with any of it. I’m finding that I’m firmly in this camp.

How I got fear of spending

A year ago I’d have thought this fear of spending thing was a silly notion.  Since then I’ve changed my mind.  Running projections on what I thought we needed, I found myself coming up short one way or another.

I got scared and started worrying so bad it was hard to buy things we actually needed.  Then I roamed the house looking for things to sell off.  Shopping, which had been for years a tedious job at best, now caused anxiety.  I was afraid to bring home things we couldn’t use up for fear of wasting money on things we would later have to downsize.

The model in my head needed a serious tweak.  And since I couldn’t see how, I felt trapped.

Limits of the nest egg

Even though I am still not retired, it’s important to me to plan.  My dear husband, not so much.  He’s already retired and his plan is going just fine so far.  Yesterday, however, he did admit that sometimes he would like to drive south till he found a place where they don’t know what snow tires are.

We aren’t rich.  The house isn’t worth very much, though we do have almost a mile of trout stream that my husband enjoys.  We live in a depressed area.  And after 26 years in human services I don’t make what a teacher does with that kind of seniority.  Nowhere near, in fact.

Our retirement savings plan where I work used to be an insurance company annuity, but it got changed to an investment-based plan.  For a few years in the Great Recession there was no match.  It did OK though.

Anyway, we talked.  And I expressed my worries about my small nest egg lasting long enough.  (He actually thinks it’s a lot of money!)  So, we did the rational thing.  We made a budget together.  At the end of it all I realized that we’d forgotten the mortgage and car payments.  Oh no, he said, we should just pay them off.

Fear of spending strikes

“But the taxes,” I wailed.  And he, the executor of his mother’s estate who just went through that, said, “What taxes?”  Whereupon I went into gruesome detail about withdrawing from a tax-advantaged retirement savings instrument.  And then he explained that that only happens once,  then after that we’d take out less from the retirement account, lower our income, and not have to pay very much tax, if any.  If we don’t pay off, we draw out more money and have to pay more tax each year.

Well then, what about the big hit the nest egg takes paying off the house and car and the taxes?  What does that do?  Surely that devalues the nest egg and makes it harder to keep paying out for another 20 years, doesn’t it?  That had to be put to the test.  Neither of us has a head for that!

So I used the spreadsheet that I made a couple of years ago to see if the nest egg would work at all.  (That is pretty good if I do say so myself.)  I found that with the payoff taken out, the cost of living went down so we could actually get by on only a little more than 4% out a year.  Now that may not be the gold standard any more, but it does give you something to play with in modeling.

Epiphany

Now, before we had this talk,  I’d been convinced we were financially doomed and couldn’t stay in the house.  But just taking a look at it from another angle tells me we have room to maneuver.

There are still questions, such as whether staying is a long-term solution.  After all,  we both wonder about upkeep and the seasonal chores of snow removal and grass control.  But there are also answers for those questions.

I don’t need to know all the details by my retirement date in July of 2019.  We could sell out and leave, or get one of those reverse mortgages and fix that garage door.  Maybe we could go down to one car (which would be smarter) and it might be a pickup truck.  To some extent we will have to make things up as we go along.

But a simple tweak of our model for planning retirement tells me we don’t have to move to Ecuador to survive after all.  We can live in place and really think about whether to leave our quiet hideaway in the north.

More information is a good thing

Making a budget together and redefining who does what to contribute was a big help.  Just talking it over with my left-brained mate helped me out of the trap I put myself in.

Retirement planning, I’m convinced, is a process just like retirement itself is.  All we can do is our best and try to leave a little slack in the  plans to use when life throws us a curve.

Am I still scared to spend?  Well, yeah, it doesn’t go away overnight.  But I’m not petrified now.  I now know I’ll afford to go to the pool for exercise a time or two a week.  It’s nice to think I may get a couple more years to weave and quilt in the space we have.  And it’s also nice to know that if we do move on, it shouldn’t be a disaster.

Do you have a fear of spending?  What’s it based on?  Can you find another way to look at that basis?

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When transitioning from an earned income stream to managing on Social Security and savings, fear of spending can be a problem to retirees. Our faulty model of how to draw down the retirement savings caused mine. Here's what we did about it.When transitioning from an earned income stream to managing on Social Security and savings, fear of spending can be a problem to retirees. Our faulty model of how to draw down the retirement savings caused mine. Here's what we did about it.When transitioning from an earned income stream to managing on Social Security and savings, fear of spending can be a problem to retirees. Our faulty model of how to draw down the retirement savings caused mine. Here's what we did about it.

 

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