Anyone who has ever quit smoking, gone on a diet, attempted to wake up earlier or exercise more often knows that re-programming our behavior is tough. The will to stop doing something that gives us pleasure in order to make us healthier, more fit or an otherwise better version of ourselves takes serious, ongoing effort. Our tiny, little pre-frontal cortex must use all its rational, forward-thinking strength to consistently overcome that brut and lover of immediate gratification, the amygdala. David meet Goliath.
To overcome the challenge of mastering a healthy behavior, we often employ simple thought processes or systems to help us make decisions. Whether it’s physical or fiscal health, we use certain rules or methods to help us achieve discipline. We avoid carbs or take up cross fit and in our financial life, we use techniques like making automatic deposits to saving, budgeting or paying ourselves first. It’s mostly a mental game to help us keep our hands off the donuts or the dollars in our savings accounts. If we find a financial system that works, we’re able to view certain dollars differently, as off-limits.
Putting a mental gate around our savings gets us into the habit of ignoring that money when we’re making spending decisions. We train ourselves to view only the non-savings dollars as part of the pot from which we can spend and our savings becomes an untouchable resource for down the road.
As we condition ourselves to save, the feeling of sacrifice can give way to more positive emotions. Rather than feeling constrained to spend, we might begin to feel the joy of watching our savings grow. We might gain a sense of pride or relieve a sense of insecurity. Our positive emotions encourage us to continue to save and reinforce the idea that our savings is ‘other’ money that it’s imprudent to spend.
Because limiting spending and actively saving are viewed as healthy financial behaviors, and because we receive emotional reinforcement when we do it, it often doesn’t occur to us that we might have to unlearn these habits at some point. With other healthy habits like diet and exercise, the goal is to maintain our disciple indefinitely but with saving, there comes a time when it is healthy to stop. Once we reach retirement, we are expected not only to stop accumulating, but to open the gate around our savings and begin to use our money for living needs.
The subconscious assumption we make is that by the time we reach retirement, we’ll be willing to start spending our retirement money. We imagine that our financial planner will give us the green light to retire and our focus will seamlessly change from accumulation to decumulation. In reality, even if we’ve been told that we’ve saved enough and it’s ok to spend our assets, making a 180-degree shift in our thinking and behavior around saving and spending can prove much more challenging than we anticipate.
Particularly if we get a significant amount of pleasure or relief from watching our money grow, it’s tough to believe it’s ok to start drawing down our savings. After watching our account values go up, up, up our entire working life, the idea that our money will grow at a slower pace or even decline can feel very scary. In times of emotion, it’s even harder not to fall back on the systems that have provided us comfort in the past.
When we retire, we can no longer get comfort from making deposits to saving, so instead we become vigilant about our withdrawals. Minimizing the outflows from our portfolios feels like a way to regain control and preserve the comfort we get from maintaining a high level of savings. We might limit our spending to just the essentials, foregoing things like travel, remodeling, buying a second home or a luxury car even when those purchases are an entirely affordable part of our financial plans.
So, how do we avoid such unnecessary sacrifices that could greatly diminish our quality of life? As part of our preparation for retirement, we can begin to grow our comfort level with spending. If we can slightly modify the way we think about money, we can start to understand the difference between financial discipline and austerity and start to see the positive side of spending our savings. The following exercises can help nurture that perspective:
Remember the good times.
Recall the journey you took to grow your money. Think of a time or two when you had less money than you do now but still felt happy or peaceful. Identify what brought you joy in those situations.
Confirm what is safe.
Name five things that are good in your life that wouldn’t go away even if you had less money.
Keep your promises.
Think back to all the times you promised yourself that you would eventually reap the benefits of the financial sacrifices you made to save money. How would it feel to break those promises to yourself?
Imagine what could go right.
Consider the positive outcomes from spending money. Rather than focusing on the potentially negative consequences of spending, think about the good that could come from spending on something or someone you love.
Give it time.
It can take time, possibly years, to gain comfort around parting with our savings. Accept how you feel now and work to improve it a little at a time. Meet more frequently with your financial planner in the years surrounding retirement for support and reassurance.
With some time and attention, even those of us who are the most prone to financial worry can ensure a successful transition from avid saver to comfortable spender in retirement.