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Now that you're finally retired, don't be afraid to spend money

  • Many retirees have trouble transitioning from saving to responsible spending.
  • Steps to wise spending in retirement include crafting a budget, donating to charities, buying long-term care insurance and setting aside cash reserves for emergencies.

Financial planning can help you enjoy your retirement years in a disciplined and efficient way.
Adrian Weinbrecht | Getty Images
Financial planning can help you enjoy your retirement years in a disciplined and efficient way.

Many people who have saved millions of dollars to retire comfortably are now scared to spend it.

A recently retired client, a woman with approximately $1 million in savings, was asked to join a group of friends on a girls' getaway vacation costing approximately $3,000. Even though she had plenty of money to take the trip, she felt uneasy because it meant breaking her lifetime habit of saving for the future. She's lived a financially disciplined life for so long that she didn't know how to handle this expense without any earnings to pay for it.

Despite sobering statistics about most Americans' lack of retirement savings, many people have done an admirable job of socking away enough money. Through a combination of disciplined savings habits, moderate lifestyles and maybe a little luck, they find themselves able to retire comfortably. For these individuals, the move from saver to spender can feel like an abandonment of all of the principles they have known for more than 30 years.

Additionally, many retirees can seem paralyzed by what I call the "what if" syndrome. Some are uncomfortable spending money unless all of the possible calamitous outcomes, regardless of how remote, are considered. They live in a prison of fear of what might happen, building a wide moat of protection around themselves and their money. In all likelihood, they will come to the end of their days with an abundance of caution, wealth and unfulfilled dreams.

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Yet retirees do not have to be undisciplined in their approach to money or live irresponsibly to enjoy their retirement years to the fullest. Here are some steps that people can take to have a fulfilling retirement while staying true to who they are.

Retirement spending requires discipline. Start by understanding what is important to you so you can make wise decisions. What inspires you? What relationships are the most fulfilling? What brings you joy? Over my nearly 20 years' working with clients, most answers revolve around a combination of family relationships, ongoing personal growth, making an impact in the world and leisure activities.

Take time to think about personal goals, the legacy you'd like to leave your family and how to enjoy the second half of your life. This exercise will help you put a finer point on your retirement cash-flow planning.

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Next, create a budget or set money aside in separate accounts to fund your priorities. One of my clients realized that his greatest joys were spending time with his family and world travel. He wanted to travel with his children and grandchildren and hoped to influence his family with his passion for learning about the world. So we built a travel and vacation expense into his budget. He now allots at least $20,000 annually for the family trip. He's taken several trips in recent years to points around the globe and says it's given his retirement a new purpose.

Others who have made generous donations to charities during their working years — but have since shut off this spigot in retirement — are now dipping their toes back in. Through donor-advised funds and other tax-efficient giving methods, they understand they can still make charitable contributions and stay within their budgets.

As much as we can plan for a host of negative circumstances, we can't cover every possible outcome. Strategic financial planning, however, can address many of the concerns that paralyze some retirees.

"I define financial planning as continually preparing how to use limited resources to fund ever-changing goals in the face of unrelenting uncertainty."

Many people fear that the cost of long-term health care will suck away a lifetime of savings. These people should consider using a portion of their wealth to purchase long-term-care insurance. Others, worried that their children may not inherit their wealth once they pass away, should purchase permanent life insurance coverage, if possible.

For those concerned they will make poor emotional decisions in a market correction, make sure you have adequate cash reserves to cover your needs for an extended time frame.

I define financial planning as continually preparing how to use limited resources to fund ever-changing goals in the face of unrelenting uncertainty. Over the span of a multidecade retirement, an unexpected event will occur, forcing individuals to adjust their spending and savings plans.

Financial planning can't eliminate all anxiety and fear, but it can help you give yourself permission to enjoy your retirement years in a disciplined and efficient way.

— By Charlie Jordan, partner and wealth advisor for Brightworth

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